Assessment of Factors Affecting Sales Volume

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MEKELLE UNIVERSITY
DEPARTMENT OF MANAGEMENT
COLLEGE OF BUSINESS AND ECONOMICS
ASSESSMENT OF FACTORS AFFECTING SALES VOLUME:
WITH REFERENCE TO MESFIN INDUSTRIAL ENGINEERING PLC
BY:
GUESH BERHE
A PROJECT WORK SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE DEGREE OF MASTERS OF BUSINESS
ADMINSTRATION (MBA) IN INTERNATIONAL BUSINESS
PRINCIPAL ADVISOR – TEWELDE MEZIGOBO (Asst. Professor)
CO- ADVISOR
-
HAGOS MERESSA (Lecturer)
JUNE, 2010
MEKELLE, ETHIOPIA
DECLARATION
I, Guesh Berhe, here by declare that the thesis entitled “Assessment of Factors Affecting Sales
Volume: A Case Study of Mesfin Industrial Engineering PLC”, submitted by me to the award
of the Degree of MBA in International Business of Mekelle University at Mekelle, is original
work and it hasn’t been presented for the award of any other Degree, Diploma, Fellowship or
other similar titles of any other university or institution.
Name_____________________________ Signature________________
Place_________________________ Date________________________
CERTIFICATION
This is to certify that this thesis entitled “Assessment of Factors Affecting Sales Volume: A
Case Study of Mesfin Industrial Engineering PLC” submitted in partial fulfillment of the
requirements for the award of the degree of MBA in International Business to the College of
Business and Economics, Mekelle University, through the Department of Management, done by
Mr. Guesh Berhe , ID No.CBE/PR0003/01 is an authentic work carried out by him under my
guidance. The matter embodied in this thesis has not been submitted earlier for award of any
degree or diploma to the best of my knowledge and belief.
The Supervisors:
Principal Advisor: Tewelde Mezigobo(Assistant
Signature:___________ Date:_________
Professor)
Co-advisor: Hagos Meresa (Lecturer)
Signature:___________ Date:_________
Table of Contents
Page
DECLARATION .................................................................................................................
CERTIFICATION...............................................................................................................
ABSTRACT .................................................................................................................... vii
ACKNOWLEDGEMENTS .............................................................................................ix
ABBREVIATIONS AND ACRONYMS………………………………………………..x
LIST OF TABLES……………………………………………………………………....xi
LIST FIGURES………………………………………………………………………...xii
CHAPTER I : INTRODUCTION....................................................................................1
1.1 Background of the Study ...........................................................................................1
1.2 Statement of the problem ……………………………………………………….... 4
1.3 Objective of the Study ...............................................................................................5
1.4 Significance of the Study...........................................................................................6
1.5 Scope of the Study.....................................................................................................6
1.6 Limitation of the study ..............................................................................................6
CHAPTER II: REVIEW OF LITERATURE………………………………………… 8
2.1 Internal Factors affecting Sales .................................................................................8
2.1.1. Price ...................................................................................................................8
2.1.2 Product................................................................................................................9
2.1.3. Place.................................................................................................................13
2.1.4 Inventory shortages...........................................................................................14
2.1.5. Promotion ........................................................................................................15
2.2 External Factors affecting Sales ................................................................................22
2.2.1 The Natural Environment .................................................................................23
2.2.2 Political -Legal Environment............................................................................23
iv
2.2.3 The Economic Environment.............................................................................25
2.2.4. The Technological Environment .....................................................................27
2.2.5 Socio -Cultural effects and Consumer behavior...............................................28
2.2.6 Competition ......................................................................................................30
CHAPTER III: MATERIALS AND METHODS ........................................................31
3.1 Profile of Mesfin Industrial Engineering PLC ........................................................31
3.1.1 Background of Mesfin Industrial Engineering PLC.........................................31
3.1.2 Scope of MIE....................................................................................................31
3.1.3 Vision, Mission, Values, and Sources of Competitive Advantage for MIE.....32
3.1.4 Products of MIE................................................................................................33
3.1.5 Organizational Structure...................................................................................35
3.1.6 Manufacturing Flow of MIE’s Products...........................................................36
3.1.7 Quality Certificate of MIE................................................................................36
3.2 Research Methodology ............................................................................................37
3.2.1 Research Design and Area Description ..........................................................37
3.2.2 Data Sources and Data Gathering Techniques ...............................................37
3.2 3 Method of Sampling .........................................................................................38
3.2.4 Data Analysis....................................................................................................38
3.2.5 Organization of the Paper .................................................................................38
CHAPTER IV: RESULTS AND DISCUSSIONS ................................................39
4.1 Factors Affecting Sales Volume............................................................................39
4.1.1 Internal Environmental Factors ........................................................................40
4.1.1.1 Price………………………………………………………………40
4.1.1.2 Product Quality…………………………………………………...41
4.1.1.3 Place (Distribution)…………………………………………….....51
v
4.1.1.4 Promotion Mix…………………………………………………....52
4.1.1.5 Shortage of Inventory………………………………………….....57
4.1.2 External Environmental Factors……………………………….........................59
4.1.2.1 Natural Factor……………………………………………......59
4.1.2.2 Economic Factor…………………………………………….62
4.1.2.3 Competition………………………………………………….63
4.1.2.4 Technology…………………………………………………..64
4.1.2.5 Political and Legal condition………………………………...65
4.2 Challenges and Opportunities………………………………………………………..66
4.3 Trend of Sales Volume ................................................................................................68
CHAPTER V: CONCLUSION AND RECOMMENDATION .................................75
5.1 Conclusions .................................................................................................................75
5.2 Recommendations ...................................................................................................77
BIBILIOGRAPHY ..........................................................................................................80
Articles …………………………………………………………………...82
Internet………………………………………………………………….. 82
APPENDICES…………………………………………………………………………. 83
Appendix A: Questionnaires
……………………………………………………….8 3
Appendix B: Interview Schedule to Marketing and Sales management ......................92
Appendix C: Interview Schedule to General Manager ………………………………96
Appendix D: Organizational Structure of MIE .............................................................97
Appendix E: Purchase Plan of MIE………………………………………………….. ..98
Appendix F: Actual Sales of MIE …………….……………………………………….99
Appendix G: Planned Vs Actual sales of MIE…………………………………………99
Appendix H: Inventory Turnover trend of MIE……………………………………… 100
vi
ABSTRACT
This project paper entitled “Assessment of Factors Affecting Sales Volume: A Case Study of
Mesfin industrial engineering PLC” has been formulated by five leading research questions. The
objective of this study is to assess the internal and external environmental factors affecting sales
volume of Mesfin Industrial Engineering PLC. Taking this view in to account, the internal factors
like price, product quality, place, and promotion mix elements, level of inventory of MIE has been
discussed. In addition to this, the external environmental factors like natural, economical,
technological, political-legal ,and the nature of competition in the market have been assessed
&described and also the way these factors are affecting the company has been described. Further
more, the sales trend of the company and the type of promotion tools that company employ have
been assessed. Finally, based on the findings, some suggestions on how to improve the existing
situation have been forwarded. This study was conducted using the case study method in the form
of descriptive research. To carry out this study both primary and secondary data have been used.
For the theoretical foundation and analysis, the existing literatures were investigated. To collect
the primary data from the customers of the company, questionnaire has been employed. In
addition to this, an interview was conducted face-to-face and questions were asked according to
the interview schedule. It was carried out in the form of discussion with the sales division
manager and the general manager of the company. For the purpose of this study both qualitative
and quantitative data were obtained. The quantitative data were analyzed using different types of
descriptive statistics by applying Microsoft Excel where as qualitative data were analyzed
qualitatively .The major findings that the researcher has come up with are poor delivery, no close
proximity with suppliers of raw materials, no sales professionals, absence of adequate training to
sales persons and higher price. Further more, the company employees advertising as a method of
promotion tool where as sales promotion and public relation are not extensively used. Personal
selling as a promotional tool is not well used and nothing has been done on this area. The
company’s sales volume was fluctuating for the last eight years due to longer lead time,
interruption of electric power, lack of order from customers and shortage of raw materials.
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Based on the findings of this study, the researcher has put valuable recommendations on what the
company should do to improve its existing conditions and to play a great role in the metal
manufacturing industry.
Keywords:
Advertising, Personal Selling, Product quality, Price, Sales volume,
MIE,
viii
ACKNOWLEDGEMENTS
First of all I would like to thank the almighty God for helping me in the successful
accomplishment of this paper.
I would like to express my heartfelt appreciation and gratitude to my principal advisor, Ato
Tewelde Mezigobo and my co-advisor Ato Hagos Meresa for their valuable advice, continuous
support, dedication, encouragement, valuable guidance, ingenious and suggestion. In fact, this
project paper would not have come in its present form had it not been complemented by their
proper follow-up in reshaping and organizing.
I am also indebted to staff members of Mesfin Industrial Engineering PLC in Marketing and
sales, Public Relations, Finance, and Business Development Departments for their friendly
cooperation, arranging for an interview and provided valuable information concerning the study.
Last but not least, I would like to forward my special appreciation to my family and all my
friends for their valuable support, nice cooperation, encouragements, and patience throughout my
study.
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ACRONYMS AND ABBREVIATIONS
ABS- Anti-lock Braking System
Ads- Advertisements
ASR- Acceleration Slip Regulation
BMW- Bavarian Motor Works
CAD –Computer Aided Design
CAM-Computer Aided Manufacturing
DGM- Deputy General Manager
EFFORT- Endowment Fund for the Rehabilitation of Tigrai
EEA -Ethiopian Economic Association
FDRE – Federal Democratic Republic of Ethiopia
GDP – Gross Domestic Product
GM- General Manager
HP- Horse Power
ISO –International Organization for Standardization
IT – Information Technology
Km/h- kilo meter per hour
KW- Kilo Watt
MIE PLC-Mesfin Industrial Engineering Private Limited Company
MOT- Ministry of Transport (UK)
Mph
-mile per hour
MR- Management Representatives
NM-Newton Meter
PACS -Political Action Committees
PR- Public Relation
TV- Television
4ps- Marketing mix elements, which is a combination of; Product, Price, Place, and Promotion.
x
List of Tables
Pages
Table 4.1 Customer’s response to product’s price…………………………..
41
Table 4.2 Customers’ rating to product quality dimensions …………………... 43
Table 4.3 Customers’ response to adequacy of the after sale service………….. 46
Table 4.4 Customers’ response to warranty …………………………………… 47
Table 4.5 Customers’ reply to Delivery ……………………………………. 51
Table 4.6 Customers’ rating to sales persons’ characteristics ………………….54
Table 4.7 Inventory turnover trend of MIE …………………………………… 58
Table 4.8 Comparison of local and foreign Purchase of items of MIE………... 60
Table 4.9 Comparison of local and foreign Purchase of items of MIE…………60
Table 4.10 Planned Vs Actual Sales figures (in Birr) ………………………….68
Table 4.11 Quantity of product Sold ………………………………………… 71
xi
List of Figures
Pages
Figure 1.1 GDP Compositions of Sectors …………………………………….. 2
Figure 4.1 Types of products customers buy …………………………………. 42
Figure 4.2 Customers’ reply to product’s origin preference …………………...48
Figure 4.3 A pie chart showing why customers prefer MIE’s product……… 49
Figure 4.4 A pie chart showing customer’ problem in relation to spare parts….50
Figure 4.5 Shows how technology affects MIE’s competitiveness …………. 65
Figure 4.6 Planned Vs Actual sales of MIE ………………………………….69
Figure 4.7 Trend of sales volume of MIE ……………………………………70
xii
CHAPTER I: INTRODUCTION
1.1 Background of the Study
The Ethiopian economy is an agrarian economy in which the livelihood of about 85 percent of the
population directly or indirectly depends on the agricultural sector. The sectoral structure of the
value-added to the national economy in 2004 (GDP composition of sectors) accounts: Agriculture
47 percent, Service Sector 40.6 percent and Industry 12.4 percent (EEA, 2003/04).
Out of the total share of the industry sector, manufacturing represents 7 percent. Major industrial
sub-sectors are food, beverage, tobacco, textiles, leather, printing, paper, and non-metallic
minerals. In consumer goods manufacturing food, beverage, textile, leather and shoe dominate
the large and medium scale manufacturing sub-sector in Ethiopia. These four groups, including
the chemical process industries, account for 78 percent of the gross value of output of the large
and medium scale-manufacturing sector. Obviously the metallic manufacturing industries account
only less than 22 percent of the manufacturing sector (EEA, 2003/04) .
Manufacturing industry has historically been weak and its growth has remained insignificant with
contribution to the country’s GDP averaging 13 percent. On the other hand, the share of the
services sector in GDP has been rising and peaked at 41.5 percent in 2002/03. Industry and the
services sectors registered considerable recovery over the five-year period with growths
averaging about 4.5 percent and 5 percent, respectively. Industry and the services sectors together
accounted for 53 percent of GDP and agriculture accounting for the remaining 47 percent in
2003/04(CSA, 2005 cited in Getinet, 2007).
1
Figure1.1: GDP Composition of Sectors
12.40%
47%
40.60%
Agriculture
Service
Industry
Source: CSA, 2005 (cited in Getinet , 2007)
It is clear that the industrial sector is well behind both the agriculture and service sectors. When
we further analyze the composition of the industry sector, we find that the share of the
manufacturing sub-sector is only 5.4 percent of the total GDP in 2003/04(Getinet, 2007).
Although the sector’s contribution to GDP is low, development of the manufacturing sector plays
a vital role in the country’s economy in three ways: (a) the value addition process creates job
opportunities for local citizens, thereby reducing the level of unemployment; (b) products
manufactured locally will have a substitute effect for imports of some manufactured products,
thereby saving foreign currency; (c) it increases export value added products instead of raw
agricultural products, thereby earning a higher foreign currency from exports(Getinet, 2007) .
Organizations exist to attain certain mission for undefined period of time. In order to exist in the
business for a long period of time, organizations must look for effective and efficient ways of
doing business activities to achieve organizational objectives. At present due to environmental
2
dynamism and competitiveness, the struggle for survival and succeeding in the business has
become more difficult and challenging in the competent global world (Rajasekhara, 2008).
Today, business is conducted in a dynamic environment where every thing is changing and
changing fast. A successful business is one which not only recognizes this fact and prepares to
face the challenges posed by the change but influences the speed and direction of the change to
make the conditions more conducive for its survival and growth.
Churchill (2003), stated that the highly dynamic and competitive environment of the 21st century
demands a more responsive, flexible approach to sales management. Sales are becoming less
hierarchical with fewer layers of management while more responsibility is being given to the
sales person.
The Ethiopian manufacturing industries are operating today in a business environment
characterized by dynamic environment where global competition and technological
advancements are changing rapidly. In order to respond to this rapid environmental changing and
being able to be competent in the face of stiff competition, proper implementation of selling
activities is of paramount importance to business firms.
Many firms face markets that demand high level of service. Firms that sell capital equipment, for
instance, must provide their customers with installation and maintenance service; fashion
manufacturers must provide rapid order processing and delivery; and firms that sell electronic
components must offer special product design and engineering services. These services must be
integrated with the rest of the firm’s marketing and selling activities for the company to compete
effectively (Churchill, 2003).
The sales department of a company is responsible for the selling of products and its
accompanying activities such as pricing, promotion, maintenance of customer satisfaction and
related activities. If the performance of the sales department is not tantamount to the expectation
of customers, sales volume would decline. This reduction of sales would inevitably threaten the
over all livelihood of the firm (Darsie, 2003).
The sales (selling) concept holds that customers, if left alone, will not ordinarily buy enough of
the organizations products. The organization must therefore undertake an aggressive selling and
3
promotion effort. This is to mean that under normal circumstance customers show inertia or
resistance unless they are pushed to buy. So the company must use effective selling and
promotion tools to stimulate more buying thereby increasing sales volume (Kotler, 1999).
The ultimate goal of any business establishment is to remain in business profitably through
production and sale of products or services. Without optimal profit, a business firm cannot
survive, let alone achieve a sustainable growth. One of the core activities in a business company
is the marketing and sales activity. The ultimate success or failure of a company depends on its
ability to sell what it produces and continues the production-sales cycle for relatively a longer
period of time (Getinet, 2007).
1.2 Statement of the Problem
For all business organizations, profit is a determinant factor for their existence in the ever
changing business environment. The primary objective of a business undertaking is to earn profit.
A business organization needs profit not only for its existence but also for expansion and
diversification. Keeping other things constant, the profitability of an organization depends on its
sales volume.
Mesfin Industrial Engineering (MIE) being one of the Endowment Fund for the Rehabilitation of
Tigrai (EFFORT) companies is a privately owned company located at the northern part of
Ethiopia, in the Tigrai regional capital, Mekelle. It is the leading equipment manufacturing and
industrial engineering company in East Africa. MIE designs and installs equipments &
components for the energy, mining, manufacturing, construction, transportation, and agricultural
sectors. Despite this fact, the company could not achieve a sales volume as expected and
sometimes its annual sales volume is less than what other small firms can achieve it with in a
year. Further more, a study conducted in the company on the area of model development of
supply chain management system by Mesfin (2007) shows that the company has not been
utilizing its capacity although it is the largest metal products manufacturing in the East Africa.
Therefore, for a business enterprise like Mesfin Industrial Engineering PLC, the detail
examination of factors affecting its sales volume becomes crucial because it can at least tell us
some thing about the past and current sales trend and the over all profitability of the company.
4
Mesfin Industrial Engineering PLC, which is engaged in manufacturing activity, is highly
influenced by internal and external environmental forces. One thing that can be mentioned here is
that according to sales data of the company (2002-2009), there is a fluctuation of sales figures
over the past eight years. Furthermore, a recent study made by Yemane (2009) on the area of
promotional activities and practices shows that the company has given little attention to personal
selling which is fundamental and widely used to promote or increase sales by companies who are
engaged in similar activities. Therefore, this is a crucial issue that demands attention and further
investigation to know why this has happened to the company.
Hence, this study aims to identify the factors that could affect the sales volume and will suggest
suitable measures for improving the existing conditions of the company by answering the
following research questions:
1. What are the factors affecting sales volume of the company?
2. How do these factors affect sales volume of the company?
3. What does the past and current sales trend of the company seem?
4. What promotion means are employed by the company?
5. What must be done to increase or improve existing level of sales volume?
1.3 Objective of the Study
The general objective of the study is to assess the internal and external environmental factors
affecting sales volume of Mesfin Industrial Engineering PLC.
Specific Objectives
1. To describe the factors affecting sales of products of the company
2. To find out better ways of promoting sales of the company’s product.
3. To describe how the different factors affect sales volume of the company.
4. To investigate the existing and the previous sales trend of the company.
5. To examine the promotion tools employed by the company.
5
1.4 Significance of the Study
The fact that no studies have been conducted in the company regarding this issue makes worth
conducting this study. The research out come could be an important input to the company to
make the necessary adjustments and improvements based on the recommendation of the study.
The research could open the door for other researchers who want to study further on this area or
other similar issues. Furthermore, the study can be used as a literature review.
1.5 Scope of the Study
In this case, the study has given emphasis to the internal and external environmental factors
affecting sales volume of the company. To enrich the study internal company documents were
employed. More specifically, this study has used sales figures of the company for last eight years
starting from 2002-2009. For the inventory turn over rate, planned sales figure and quantity of
product sold a five year company data has been used (i.e. 2005-2009).For the purchase plan,
however, a four year data of the company was employed. This study has also included all the
relevant activities with in the sales department of the company or out side it that have a positive
or negative impact up on the implementation of selling activities in particular and marketing
activities in general.
Furthermore, the study has covered areas of Mekelle city where customers of the company are
concentrated on.
1.6 Limitation of the Study
Some of the limitations (problems) that the researcher has faced in carrying out this project are
listed as follows:
The time given for the researcher to conduct this study was very short and the researcher
could not cover all the necessary areas that have to be covered.
There was electric power interruption during the time of the study and this has resulted in
problem of editing, typing the results of the study and also a problem in obtaining relevant
theoretical and empirical studies about the title from the internet. .
6
The researcher could not get complete secondary data on planned and actual sales figures.
The researcher has only used data of actual sales & planned sales for eight and five years
respectively.
Some respondents were not willing to fill in the questionnaire because they get bored with
filling questionnaire each time.
Some questionnaires were not collected respondents could not fill in and return it on time.
Unavailability of empirical studies related to the title.
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CHAPTER II: Review of Literature
2.1 Internal Factors Affecting Sales
Before the factors that affect sales volume of a company is discussed, it becomes important to
define what sales volume is. Sales volume is the quantity or number of goods sold or services
rendered in the normal operations of a firm in a specified period1.
The internal factors affecting sales in the automotive industry are features of the product and its
management that have effect on sales and can be influenced to most extent by the car producers
themselves. There are decisions regarding the product, price, place and promotion, which are also
called the 4Ps or the marketing mix in the marketing language.
As the marketing mix is based on the companies understanding of its consumers the right
management of these elements will have a major impact on the performance of sales.
2.1.1. Price
Price is one of the key factors of the marketing mix as it represents what a company earns in
return for its efforts. Its setting is to be regarded with care as both undercharging (lost margin)
and overcharging (lost sales) can have dramatic effects on the profitability. When setting price a
producer has to be aware about the elasticity of its product. An elastic product would react to a
small change of price with a large change in demand. An inelastic product is not as price sensitive
and a change in price would only lead to a small change in demand. Looking at the industry,
especially in the low price and small vehicle mass market, price is a very decisive factor for sales.
Customers that want to buy a cheap car will be more price sensitive. Therefore, competing with
price in this sector will have a positive effect on figures. Further, there is a lot of competition in
the market with excess capacity, which leaves the customer with a lot of choice and buying
power. Generally, vehicles in the lower price segments can be regarded as elastic as a lower price
would increase sales by gaining consumers from the competition. An example for this would be
the successful pricing policy of the Japanese and the Koreans. On the other hand, customer that
buys more expensive vehicles in the middle and upper class show less price sensitivity. When
1
(http://www.business dictionary.com definition/sales- volume.html
8
buying more superior vehicles product and brand features become more important. When
spending a large amount of money small changes in price become less significant. This means the
higher the class and the greater the costs of a vehicle, the more price inelastic it will become.
Further it is proven that products that are a form of self-expression such as expensive cars will
suffer from prices that are too low (Ackel, 2005).
The firm facing a competitor’s price change must try to understand the competitor’s intent and
the likely duration of the change. The firm’s strategy often depends on whether it is producing
homogenous or non homogenous products. Market leaders who are attacked by lower priced
competitors can choose to maintain price, raise the perceived quality of their product, reduce
price, increase price and improve quality, or a low-price fighter line (Kotler, 1999).
Pricing products is an integral part of selling. Salesmen have little to do with actually setting
prices, but they should understand their firm’s pricing policies so that they can show the customer
he is getting good value for his money. Pricing policies vary considerably from seller to seller and
are influenced by a number of factors: the type of selling organization, the type of product
handled the firm’s customers, the firm’s competitors and the general economic environment
(Wingate, 1969).
2.1.2 Product
The company’s product is the core element in the marketing mix as it provides the functional
elements that are received by the customer. The product itself will be one of the main drivers on a
consumer’s decision whether to purchase a certain vehicle and therefore has a major effect on
sales. Cars have several features, which are listed below that can have effect on their sales
performance (Op.cit, 2005).
i. Quality
According to the Quality Gurus Juran and Crosby quality is “fitness for purpose” or
“conformance to specifications” respectively. This would mean a good quality product satisfies or
delights the customer and its production lies within the given specifications.
9
When it comes to cars the definition of good quality to a consumer is a little more difficult. The
magazine Media Mind, which made research on 33 car brands, included the following factors to
define the quality of cars. A part of the quality ranking is its technology, which shows how well a
car is produced and assembled. Second is the reports made by MOT, which is a good indicator for
the durability a vehicle. The final factors are breakdown statistics, which shows failure after sales.
Currently German brands are still regarded as top of the league when it comes to quality but the
Japanese producers are close to catch up. As the Japanese are getting stronger in the market this
could have a relation to their improvement in quality and show its importance. Overall it can be
said that all customers that purchase a new vehicle will have high expectations to its quality. Of
course the demand for good quality will rise as the car gets more expensive but generally all
producers can improve their position with providing better quality. Quality is not only a factor
that can affect sales positively but for instance in the example Mercedes quality issues can lead to
image damaging results and even a drop in sales( Ibid,35).
ii. Innovation and Technology
Innovation is the introduction of new ideas, goods, services and practices which are intended to
be useful. In the car industry, technology and innovation play an important role as they improve
standards of driving. There are three main categories innovation can have an impact on. The first
category is the performance and the economy of the motorization. Examples for this would be the
improvement of performance of diesel engines or the development of hybrid engines to reduce
consumption by the Japanese. The second category is the improvement of safety, which improves
the security for passengers. Anti-lock Braking System(ABS) which helps to stop a car in the
shortest distance possible even on icy grounds, or airbags, which protect passengers at a collision,
were milestones in the development of new safety features, which by now saved many lives.
Finally, in the last category are technological developments that support the driver and make
using a vehicle more comfortable and easier. Examples for this would be parking aids that alarm
drivers when getting to close to an object or the so called cruise control, which enables drivers to
raise and lower the speed using their hand and taking off pressure of their legs doing long
journeys. Overall it can be said that the development of new technology can create a competitive
edge for certain period of time as long as patented and boost sales for a producer. On the other
10
hand, new features are often costly and normally at their introduction only demanded in the
upper-class market( Ibid, 36).
iii. Handling/ Performance of Engine
The handling of a vehicle would define how well a vehicle performs adjustments on the steering
wheel, particularly during cornering. Sporty cars are generally harder suspended and show better
performance taking corners while standard cars have more comfortable suspensions and are not
performing as good in corners.
The performance of an engine can generally be defined by the amount of cylinders, its engine size
in liters and an indicator of power in KW, hp or Nm. Also good performance indicators are the
acceleration time 0-100 km/h or 0-60 mph and the top speed of a car. Both handling and motor
performance requirements are dependant to the segment a vehicle finds itself in. Sports cars like a
TVR and sporty luxury cars like an Audi S4 show in both categories better performance than
average. Therefore, a competitive edge can be created with those features in these segments
having a positive impact on sales.
To conclude the features of good handling and good engine performance can have a positive
effect on sales also in the mass market as long as other features like low fuel consumption are not
left behind. Handling and engine performance gains in importance in certain performance related
markets. Therefore, these features have a strong relation to the preference of the consumer (Ibid,
36).
iv. Economy of Engine
The economy of an engine is usually related to its performance. The greater the performance the
bigger the engine the more fuel the engine consumes. With current ecological problems of the
greenhouse effect, shrinking oil resources and rising petrol prices the economy of engines is
playing a more important role than ever. Also smaller fuel-efficient engines are offered lower
insurance and tax premiums. Especially in the lower market segments, low fuel consumption is a
driving factor for sales as the budget for purchase and running costs play a more important role to
the consumer. About 50 percent of consumers in a survey made by Auto Bild are interested in
low fuel consumption and running costs when purchasing a vehicle. Normally the buyer has a
11
choice of different engine sizes for each model and can decide whether performance or
consumption is more important. However, many consumers want the best out of both. A dieselmotorized car is therefore a good solution as consumption is relatively low and performance has
increased immense over the past years, nearly catching up with the development of petrol
equivalent. By now about 40 percent of European vehicles are fuelled with diesel, having an
increasing percentage. Even luxury cars like the Mercedes S-Class or the Audi A8 offer diesel
engines in their portfolio. As diesel engines still have a greater potential for improvement, as
technology was left behind and regarded as inefficient for passenger cars until 15 years ago,
further development in this sector could lead to a competitive edge, having a positive influence
on sales (Ibid, 37).
v. Safety
The safety of a vehicle is defined by the security it provides to the passengers in dangerous
situations or a collision. With increasing numbers of vehicles on Europe’s roads the safety of
vehicles has always been important. Safety can be improved by developing features that help
prevent accidents or protect the passengers in case of one. By developing safety features like
ABS, ASR or the airbag Mercedes Benz could create a very positive image for itself. Also
Volvos were especially in the 1980s and 1990s popular family cars as they were famous for their
good accident performance. Accident statistics show a reduction in number of people killed but a
slight increase in number of people injured on Europe’s roads. This could have developed by
current safety improvements, helping save peoples lives getting injured rather than killed. The
provision of good safety and the development of new features can definitely have a positive
impact on sales such as in the two examples of Mercedes and Volvo. Safety is generally a
want/need of consumers but its importance varies in certain segments (Ibid, 38).
vi. Design and Aesthetics
A design is responsible for the appearance of a product and seems to be a very important feature
in any market segment. Every customer would want his vehicle to be aesthetically pleasing. Of
course there might be variation in taste and in importance as other features might be tradeoffs.
According to an employee of BMW research has been made on this topic and the result was that
there are two ways to design a car. The first one is using old design features of previous models,
12
which make the vehicle more convenient and pleasing to the public. The second way is to use
new features, which results in the consumer first having to get used to the design. Interesting is
that designing a vehicle with new features will have a positive impact on the product lifecycle as
people get bored of the same features over time. An example for this would be the new E-Class,
which design was heavily based on the old model resulting in great sales at the beginning but
now dropping immensely. However, the new 5 series was regarded as a flop at the beginning
because of its design, and has reached in January 2005 the second best-selling vehicles in
Germany. To conclude unless in the lower price market segments, design plays an important role
when it comes to purchasing a vehicle. Most producers know this and therefore a lot of effort is
put into that stage. However, more risky and fresh designs can have positive impacts on sales,
which can be seen in the current success of BMW (Ibid,39 ).
2.1.3. Place
Place is the part of the marketing mix that involves decision concerning the distribution channels
to be used for a product, their management, their location, logistics and inventories to be held.
The objective is to provide the product in the required quantities, at the right time and place. In
the automotive industry each manufacturer keeps an exclusive distribution network where its
dealers are mainly independent enterprises tied to certain brands by contract. The distributors’
management and their location lie mostly in their own responsibility. Inventories of standardized
and well selling vehicles are held in small amounts by the dealers, which can be exchanged, if
necessary and in larger amounts by the manufacturers. Howe ever, in the car industry especially
in the higher price classes great customization is required and there fore many vehicles are only
built to order. Although distributors are regarded to have little power and responsibility they are
the linking joint between the producer and the consumer and are closing the deal (Ibid, 40).
Because of the distributors’ before and after sales customer contact, it is their responsibility to
provide excellent customer service, build up a good relationship and there fore create customer
satisfaction, which can improve the image of a vehicles brand. Also all these factors can have a
positive impact on sales as satisfied customers are often repurchasing. Especially in the car
industry there is a strong affinity between consumers and a certain brand based on previous
experience with the product and the people that provide it. Japanese producers are currently
creating the greatest customer satisfaction, which could be a reason for their current success.
13
Overall it can be said that distributors can have a major impact on sales by providing a good
service and closing the final deal with the consumer (Ibid, 40).
Physical distribution or place must be integrated with the other ‘4Ps’ in the marketing mix. For
example, the design of product packaging must fit on to a pallet, into a truck and on to a shelf;
prices are often determined by distribution channels; and the image of the channel must fit in with
the supplier’s required positioning. Distribution is important because: Firstly, it affects sales - if it
is not available it can not be sold. Most customers will not wait. Secondly, distribution affects
profits and competitiveness since it can contribute up to 50 percent of the final selling price of
some goods. This affects cost competitiveness as well as profits since margins are squeezed by
distribution costs. Thirdly, delivery is seen as part of the product influencing customer
satisfaction. Distribution and its associated customer service play a big part in relationship
marketing 1
Decisions about physical distribution are key strategic issues. They are not short term.
Increasingly it involves strategic alliances and partnerships which are founded on trust and
mutual benefits. Channels change throughout a product’s life cycle. Changing lifestyles,
aspirations and expectations along with the IT explosion offer new opportunities of using
distribution to create a competitive edge. Controlling the flow of products and services from
producer to customer requires careful consideration. It can determine success or failure in the
market place. The choice of channel includes choosing among and between distributors, agents,
retailers, franchisees, direct marketing and a sales force. Deciding between blanket coverage or
selective distribution, vertical systems or multi-channel networks, strategic alliances or solo sales
forces, requires strong strategic thinking. 2
2.1.4 Inventory Shortages
Inventory levels represent a major marketing logistics decision affecting customer satisfaction.
Sales people would like their companies to carry enough stock to fill all customers’ orders
1
(http://www.multimediamarketing.com/mkc/distribution channels/.
2
(http://www.multimediamarketing.com/mkc/distribution channels/).
14
immediately. However, it is not cost effective for a company to carry this much inventory.
Inventory cost increase at an increasing rate as the customer service level approaches 100 percent.
Management would need to know by how much sales and profits would increase as a result of
large inventory and promising faster order fulfillment times and then make a decision accordingly
(Kotler, 1999).
2.1.5. Promotion
Promotion is the final aspect of the marketing mix, dealing with the customer awareness and
relation to the product and the brand. Decisions are made with respect to the promotional mix,
which involves advertising, personal selling, sales promotion, direct marketing, and Internet and
online promotion. In the automotive industry promotion is taken as a serious subject and usually
all manufacturers have specially designed marketing departments that work closely together with
other departments to tackle these tasks (Op.cit, 2005).
Promotion, which involves marketing strategy, is also meant to have an influence on a brand’s
image. The image of a vehicle and especially its make is one of the main drivers that affect the
decision of a customer. Media Mind, a quality test magazine, which was testing the strength of 33
producers, gave the second highest importance to consumers with 20 percent of the total grade to
a car’s image. But a brand’s image is especially influenced by its products and their performance
as well as the groups that the products are targeted at. Also a brand’s origin and its place of
production have got an influence on its image. For example, German vehicles still stand for good
quality whereas British cars for excellent design. Producers use the fact that people often prefer
inland products and build assembly plants in the area to gain higher market share. The brand
Opel, which is branded as Vauxhall in the UK, is a good example as it appears to be a British
brand. Overall it can be said that the image of a vehicle producer is a very important factor when
it comes to sales, as customers associate certain features with a brand. A positive image will
increase sales and is at the same time very effective promotion. Damaged images like the one of
Mercedes at the moment will affect sales negatively. There fore, producers have to be aware of
their perception by the public and do their best so it fits in with their aimed marketing strategy
(Ibid, 41).
15
The promotional component of marketing involves four basic tools: Advertising, sales promotion,
personal selling and publicity.
i. Advertising
Advertising is one of the main tasks of marketing departments and aims to make the target
audience to be aware of the existence of a product. Generally, used outlets for publicities and
introductions for new vehicles are car shows like the Geneva Auto salon or vehicle show rooms,
advertising on billboards, in magazines, on TV and sales brochures. All manufacturers provide
well-designed websites and information using the Internet, which is a very effective medium as it
reaches globally. Also a very good medium of promotion is the support of car magazines, which
write reports on tests with new vehicles, which are usually provided by the manufacturers. To
conclude advertising can be very useful in catching a customers attention and the provision of
information to those that show interest are crucial. However, the most effective promotion is the
presence of the vehicles on the roads, which will achieve the greatest interest in the product, as
customers will be in touch with it on a repeating base (Ibid, 41).
According to Kotler (2004), advertising is any paid form of non personal presentational and
promotion of ideas, goods or services by an identified sponsor .The sales effect of advertising are
often harder to measure than the communication effects. Sales are affected by many factors
besides advertising- such as product features; price and availability. One way to measure the sales
effect of advertising is to compare past sales with past advertising expenditures. Another way is
through experiments. For example, to test effects of different advertising spending levels, cocacola could vary the amount it spends on advertising in different market areas and measure the
differences in resulting sales levels. It could spend the normal amount in one market area, half the
normal amount in another area and twice the normal amount in another area, and twice the
normal amount in a third area. If the three markets area similar and if all marketing efforts in the
area are the same, the difference in sales in the three areas could be designed to advertising level.
More complex experiments could be designed to include other variable, such as difference in the
ads or media used.
16
Advertising your business increases sales volume because people like buying a name they feel
they know. That is why so many people refuse to buy products that are a generic brand. They don
not know the name because they have never heard of it. They have never been given a reason to
trust the name and therefore they don not trust it. The product is often just as good, if not better
than the “name-brand” counterpart is, but the customer will not touch it. If your goal is to simply
reach more people in your area that can be done on a smaller scale. Advertising in local
newspapers is a good place to start. Many businesses hire people to stand with signs along the
road to encourage customers to come to their place of business. Others place large signs outside
advertising the specials they have for that day. 1
ii. Sales Promotion
Sales promotion includes a wide assortment of tools -coupons, contests, cents off deals,
premiums, and others - all of which have many unique qualities. They attract consumer attention,
of strong incentives to purchase, and can used to dramatize product offers and to boost sagging
sales. Sales promotion invite and reward quick response where as advertising says, “Buy our
product”, sales promotion says, “Buy it now”. Sales promotion effects are often short -lived, how
ever, and often are not as effective as advertising or personal selling in building long run brands
preference (Kotler, 2004).
Sales promotion seems most effective when used together with advertising. In some study, a price
promotion alone produces only a 15 percent increase in sales volume when combined with
feature advertising, sales volume increased 19 percent; when combined with feature advertising
and a point -of - purchase display, sales volume increasing 24 percent (Kotler, 1999).
Several factors contributed to the rapid growth of sales promotion, particularly in consumer
markets. Internal factor include the following. Promotion is now more accepted by top
management as an effective sales tool: more product managers are qualified to use sales
promotion tools, and product managers are under great pressure to increase their current sales.
1
(http://www.hellium.com/items/156106-advertising-business-sales-volume).
17
External factors include the following: the number of brands has increased, competitions use
promotions frequently, many brands are seem as similar, consumers are price-oriented, the trade
has demanded more deals from manufacturers, and advertising efficiency has declined because of
rising costs, media clutter, and legal restraints( Kotler ,1999).
Sales promotion can also be defined as follows: “An activity designed to boost the sales of a
product or service. It may include an advertising campaign, increased PR activity, a free-sample
campaign, offering free gifts or trading stamps, arranging demonstrations or exhibitions, setting
up competitions with attractive prizes, temporary price reductions, door-to-door calling,
telemarketing, and personal letters on other methods”.
More than any other element of the promotional mix, sales promotion is about “action”. It is
about stimulating customers to buy a product. It is not designed to be informative-a role which
advertising is much better suited to.
Methods of sales promotion
There are many consumer sales promotional techniques available which are summarized as
follows.
Price promotions
Price promotions are also commonly known as” price discounting”. These
offer either (1) a discount to the normal selling price of a product, or (2) more of the product at
the normal price. Increased sales gained from price promotions are at the expense of a loss in
profit-so these promotions must be used with care. A producer must also guard against the
possible negative effect of discounting on a brand’s reputation.
Coupons
Coupons are another, very versatile, way of offering a discount. The key objective
with a coupon promotion is to maximize the redemption rate-this is the proportion of customers
actually using the coupon.
One problem with coupon is that it may simply encourage customers to buy what they would
have bought anyway. Another problem occurs when retailers do not hold sufficient stocks of the
promoted product-causing customer disappointment. Use of coupon promotions is, therefore,
18
often best for new products or perhaps to encourage sales of existing products that are slowing
down.
Gift with purchase The “gift with purchase” is a very common promotional technique. It is also
known as a “premium promotion” in that the customer gets something in addition to the main
purchase. This type of promotion is widely used for subscription-based products (example,
magazines), consumer luxuries (example, perfumes).
Competitions and prizes This is another popular promotion tool with many variants. Most
competition and prize promotions are subject to legal restrictions.
Money refunds Here, a customer receives a money refund after submitting a proof of purchase
to the manufacturer. These schemes are often viewed with some suspicion by customers
particularly if the method of obtaining a refund looks unusual.
Frequent user/loyalty incentives Repeat purchases may be stimulated by frequent user
incentives. Perhaps the best examples of this are the many frequent flyer or user schemes used by
airlines, train companies, car hire companies etc.
Point-of-sale displays Research into customer buying behavior in retail stores suggests that a
significant proportion of purchases results from promotions that customers see in the store.
Attractive, informative and well-positioned point-of-sale displays are, therefore, very important
part of the sales promotional activity in retail outlets.1
Increasing the sales has always been a challenge for businesses. In this era of recession sales
promotion has become even more important. By sales promotion actually the manufacturer aims
to provide addition value to any of the members of the supply chain involved in the selling
process and even at times to the end consumer. There have been number of schemes introduced in
promotion of sales for the business. There are many hidden benefits for sales promotion,
1
(http://tutor2u.net /business/marketing /promotion –sales-promotion .asp).
19
depending to whom the manufacturer is extending the promotions offered. Promotion offers made
to the channel members of the distribution network or to the end user, each yield different results.
One of the most important reasons that results into declined sales is the better deployment of
promotional tools by the competitors. We can have number of examples in which promotional
tools made greater impact on sales of a company. There are times when these sales promotional
tools can decide the fate of a company’s product in the market. These promotional tools cannot
only result into additional market share gained but also huge volumes of sale for that product. In
fierce competitive environments, keeping an eye on the competitor’s moves is very important. A
move late in time can result into disastrous consequences. The producer or manufacturer should
be well versed with the promotional tools that can bear fruit. Secondly, the manufacturer should
have a proactive approach towards the changes made by competitor in offering the sales
promotion. For this, sales force provides a very important, first hand and quick feedback on the
proceedings of the market. A well motivated and dedicated sales team can do a lot better in
providing the insights in contrast with one struggling to survive with minimal offered pays.
Selecting the right member to provide the promotional tools is also very important. Each member
of the distribution channel and the end customer, all are very important. There are cases in the
history when a manufacturer avoided one and faced great losses. Selecting each member for the
promotion depends on the market offerings by the other producers or manufacturers to channel
members (King, 2010).
iii. Public Relations
According to Kotler (2004), public relation is building good relation with the company’s various
publics by obtaining favorable publicity, building up a good corporate image, and handing or
heading off unfavorable rumors, stories and events. Public relation is used to promote products,
people, ideas, and activities, organizations and even nations. Public relation can have a strong
impact on public awareness at a much lower cost than advertising can. The company does not pay
for the space and time in the media.
Publicity
Publicity means getting exposure through the news media, utilizing announcements prepared by
companies or the media of newsworthy stories or events. Publicity also can mean feature articles
20
in magazines. This coverage or “free advertising” can have spectacular results. Publicity takes
many forms. Your company or a public relations firm prepares press releases. These brief,
newsworthy stories highlight you or the company in a way that interests the public. The difficulty
is getting the media to use the story. To have your press releases published regularly, you must
have expertise in publicity as well as good connections with the news media.
It is rare to find a product or service that “speaks for itself” and doesn’t need promotion. As
professional salespeople, we must recognize that and actively promote products as well as our
service or our selves. Promotional strategies will not only get you in the door, they will bring the
business to your door (Alessandra, undated).
Public relations or PR can become an important issue once you put yourself in a position of
public visibility. Ordinary people do not have this kind of worries but for people such as
celebrities, sports superstars, politicians and businessmen it is an important consideration. Public
relation is an important factor to the success of certain careers. Movie stars and musicians need
their fan base to patronize their movies and shows. Sports superstars need the support of their fan
as well. Politicians need to look good in the public eye because a bad reputation can cause them
to lose in the next election. Becoming an elected public official is a matter of public trust(
Cortell,2009).
If your business has a bad reputation, it can affect sales. If you products and services are of poor
quality, it will affect your sales. If your establishment has a poor relationship with your clientele,
it will also affect your sales. Public relations can have a huge bearing on how your business
would turn out. This is why major companies hire people just to handle the public relations for
the company (Cortell,2009).
Good PR is essential for a successful business. This is especially true as your business gets
bigger. The business community is a very social community so your relationship with the people
around you matters a lot. Bad PR can affect the reputation of your business; your personal
reputation and the capacity of your business to generate profit. Large companies hire PR people
to do this. These people are hired to make sure that the business maintains good PR with its
customers and the public. However, hiring people to handle public relations means you have to
spend money. This is all good if you have a big business. You can hire a PR manager to take care
21
of things for you and having a PR manager leaves you free to do more important things
(Cortwell, 2009).
iv. Personal Selling
With complete product knowledge the salesman is able to sell more. Earnings of the sales man
usually depend on the sales volume. Thus with the increase in the sales volume and profit of the
organization, the sales man is able to increase his own earnings. In short, a sales man with
thorough product knowledge is able to sell more and thus earn more (Sahu and et.al.2003).
Personal selling is a powerful two-way communication. It allows an interactive relationship to be
developed between buyer and seller in which the later can modify the information presented in
response to the needs of the audience. Now a days, the sales force is becoming the center of the
marketing universe for many organizations because of four reasons: relationship, revenues,
service and implementation (Futrell, 1998).
The function of personal selling is to provide the specific inputs which advertising, or nonpersonal, can not offer at the individual level. It should be remembered that advertising and
personal selling are complementary activities, and that their relative importance will vary
depending up on the nature of the product and the buying behavior associated with it (Baker,
1996).
v. Direct Marketing
Direct marketing is a direct communication between a seller and an individual customer using a
promotion method other than face-to-face personal selling. Some times direct promotion is
coupled with direct distribution from a producer to consumers. How ever, many firms that use
direct marketing promotion distribute their products through middle men. So the term direct
marketing is primarily concerned with the promotion area, not place decision (Perreault, et
al.2000).
2.2 External Factors Affecting Sales
External factors to a company are opportunities and threats of the marketing environment on
which the company has little to no control. These Micro- and Macro-environmental forces
22
involve competition, natural, political- legal, economical, technological and socio-cultural forces.
In the automotive industry these factors can play an important role and have an impact on sales.
A company should examine the environment well and try to take advantage of emerging
opportunities and minimize potential threats (Op.cit, 2005).
2.2.1 The Natural Environment
The deterioration of the natural environment is a major global concern. In many world cities air
and water pollution have reached dangerous levels. There is a great concern about “green house
gases” in the atmosphere due to the burning of fossil fuels; about the depletion of the ozone layer
due to certain chemicals; and about growing shortages of water. New regulations hit certain
industries very hard. Steel companies and public utilities have had to invest billions of dollars in
pollution-control equipment and more environmentally friendly fuels. The auto industry has had
to introduce expensive emission controls in cars. The soap industry has had to increase its
products biodegradability. The major hope is that companies will adopt practices that will protect
the natural environment. Marketers need to be aware of the threats and opportunities associated
with four trends in the natural environment: the shortage of raw materials, especially water; the
increased cost of energy; increased pollution levels; and the changing role of governments
(Kotler, 2006).
2.2.2 Political -Legal Environment
For legal reasons companies will have standard terms and conditions of sales. Normally the back
of an order form will specify these and it is now customary on any web -based transactions to tick
the box to ensure that the customer has read these conditions. Terms basically state issues such as
conditions of supply, delivery, payment and other aspects relating to the supply of goods and
services (Donaldson, 2007).
Marketing decisions are strongly affected by developments in the political and legal environment.
This environment is composed of laws, government agencies, and pressure group that influence
and limit various organization and individuals. Some of these laws also create new opportunities
for business. For example, mandatory recycling laws have given the recycling industry a major
boost and spurred the creation of dozens of new companies making new products from recycled
23
materials. Two major trends deal with the increase in business legislation and the growth of
special interest groups(Kotler,2006).
Increase in business legislation Business legislation has three main purposes: to protect
companies from unfair competition, to protect consumer from unfair business practices, and to
protect the interest of the society unbridled business behavior. A major purpose of business
legislation and enforcement is to change business with the social costs created by their products
or production process( Ibid,93).
Legislation affecting business has increased steadily over the years. The European commission
has been active in establishing a new framework of laws covering competitive behavior, product
standards, product liability, and commercial transactions for the 25 member nations of the
European Union. The United States has many laws on its books covering such issues as
competition, product safety and liability, fair trade and credit practices, and packing and labeling.
Several companies have gone further than the United States in passing strong consumer
protection legislation. Norway bans several forms of sales promotion, trading stamps, contests,
premiums –as in appropriate or “unfair” instruments for promoting products. Thailand requires
food processors selling national brands also, so that low -income consumers can find economy
brands. In India, food companies need special approval to launch brands that duplicate what
already exists on the market, such as another cola drink or brand of rice( Ibid, 94).
Growth of special-interest groups The number and power of special interest groups have
increased over the past three decades. Political Action Committees (PACS) lobby government
officials and pressure business executives to pay more attention to consumers’ rights, senior
citizen’s rights, women’s rights, minority rights, and gay rights( Ibid, 95).
It is known by the public that the usage of standard vehicles lead to a production of waste by the
use of vehicles, reduction in resources, pollution of the air, the creation of the green house effect
and destruction of the ozone layer, therefore producers have to take responsibility. In order to
reduce the wastage by out of use vehicles, producers are now forced by legislation to recycle their
products. This encouraged the usage of recyclable materials and ingredients. As the general
public especially in Europe gets more environmentally conscious the demand for low fuel
24
consumption vehicles might rise. There is also a trend to alternative fuelled cars such as Bio
diesel or hydrogen. How ever, environmentally friendly cars are still a separate market segment.
A current issue is filters for diesel cars. As German producers do not offer that feature for all
vehicles and consumers have to pay extra for it, people in the industry expect a drop in German
car sales. As consumers have the choice how environmentally friendly the vehicle should be,
producers will follow the developing trend. However, they are currently working on more fuelefficient engines as alternative fuel engines do not have a great demand yet. Remaining a good
image in this sector will be helpful being competitive in the market (Op.cit, 2005).
Political and legal forces can have an influence on a firm’s decisions by determining the rules by
which business can be conducted. They can involve constraints as well as support from the local
government. In the automotive industry producers try to build up close relationships with
politicians in order to monitor politician moods and have an indirect influence. For example, the
European Union has close links to the automotive industry as it is a huge employer on the
continent. Political issues and governmental decisions affect the development of the local
economy as for example the increase of oil prices during the Iraq war and the drop of the dollar
compared to other currencies, they can also have an influence on sales in the automotive industry
(Ibid, 46).
2.2.3 The Economic Environment
According to Kotler (2006), markets require purchasing power as well as people. The available
purchasing in an economy depends on current income, prices, savings, debt, and credit
availability. Marketers must pay careful attention to trends affecting purchasing power because
they can have a strong impact on business, especially for companies whose products are geared to
high income and price -sensitive consumers.
Through its effects on supply and demand, the economic environment can have a critical impact
on the success of companies. Especially in the automotive industry there seems to be a close
connection between the actual performance of the economy and vehicle sales. Generally, an
economy is measured by economic growth (GDP-Growth) and unemployment statistics. The
greater the GDP the more value is produced in an economy. Low unemployment rates involve a
better spending power of the population (Ibid, 46).
25
People and organization can not buy goods and service unless they have the money. The total
population demand for a product with in a given country depends on that country’s economic
condition-the amount of growth, the unemployment rate, and the level of inflation. These factors
must be considered when analyzing market opportunities and developing sales forecasts, keep in
mind, though, that global economic condition also influence many firms’ ability to earn profit.
A secondary aspect of the economic environment is the existing distribution structure in an
industry. This includes the number, types and availability of whole salvers, retailers and other
intermediary firms might use to distribute its product. Much of a firm’s personal selling effort
may be directed to personal such intermediaries to stock and provide marketing support for the
company’s products (Churchill, 2003).
Economic factors encompass such areas as the boom/ bust cycle, and the growth in
unemployment in some parts of the country as a result of closing of traditional industries. Macro
economic factors deal with the management of demand in the economy; the main mechanisms
governments use for this are interest rate controls, taxation policy, and government expenditure.
If the government increases expenditure (or reduces taxation), there will be more money in the
economy and demand will rise; if taxation is increased (or expenditure cut), there will be less
money for consumers to spend, so demand will shrink. Rises in interest rates tends to reduce
demand; as home loans become more expensive and credit card charges rise (Blythe, 2001).
The downward economic trend that has forced consumers to alter their shopping habits will have
lasting effects. The trend is toward more careful spending and less borrowing and a reevaluation
of life styles and choices. Those with money use it wisely, and those whose businesses are
faltering are laying off workers simply to stay in business (Emoore, undated).
A bleak economy affects sales in all departments but more so in superfluous items that are
bought on whim rather than on real needs. Manufacturers, middle men, and retailers are all
involved when there is less demand for what is being made and sold. People who buy the goods
and services that make up the business community, in one sense, control the output of what is
produced. If they insist on better quality merchandise that last longer, then this is what will be
offered. Yet there will be others that will settle for something less because that is all they can
afford (Emoore, undated).
26
The economy is in a constant state of growth and turmoil, where it seems as though one minute
things are fine, and the next minute doom lurks around the corner. There are many mitigating
factors that affect retail sales in one manner or another. Some of the major influences on retail
sales include employment rates, population growth, technology, marketing strategies and tourism
(Coles, undated).
Many economic factors affect retail sales, and they can do so at any point in time. The nature of
business is that many are unsuccessful, sometimes through no fault of their own. The economy
creates certain situations that are not easily remedied, and therefore retail sales may
plummet(Coles, undated).
The economy fluctuates so frequently that it is hard for businesses to determine their retail sales
projections for coming fiscal years. As the economy goes up and down, retail sales are affected in
a similar fashion. The big retail chains tend to monopolize the market, and this has a lasting
impression upon smaller stores. The larger retail chains offer products at reduced rates, which is
an economic factor that greatly contributes to impacting upon retail sales from other outlets
(Coles, undated).
2.2.4. The Technological Environment
New materials, products, and processes emerge at a seemingly ever increasing rate. Product life
cycles are reduced in length, affecting the way goods and services are manufactured, distributed,
and promoted. Technology also brings changes to the role and function of selling (Donaldson,
2007).
Technology also influences sales strategies. Of course the impact of technology is obvious with
companies like Hewlett-Packard. But in the generally low-tech world of propane sales, Blue
Rhino is one company that has used technology to capture significant market share. By improving
the process filling and storing tanks, the company has begun to dominate a market that was
largely populated by small, independent dealers. The most obvious impact of the technical
environment of marketing is in providing opportunities for product development. Technical
advance has been occurring at rapidly increasing rate percentage of total sales in many industries.
For example, historically at 3M more than half of the current sales volume is generated by
27
products that were not in existence five years ago. Advancing technology also affects
management in more direct ways. Improvement in transportation, communication, and data
processing are changing the way sales territories are defined, sales reps are deployed, and sales
performance is evaluated and controlled in many companies (Churchill, 2003).
Technological advances in recent years have been rapid and have affected all most all areas of
life. Whole new industries have appeared ; for example ,satellite TV stations, cable net works, the
Internet, CD recordings and virtual reality, and computer-aided design systems. All of these
industries were unknown even in 1985. It seems likely that technological change will continue to
increase, and the more new industries will appear in the future. The corollary, of course, is that
some old industries will disappear, or at least will face competition from entirely unexpected
conditions (Blythe, 2001).
Technology is beginning to be a major player in the retail sales industry. The current trend of
shopping online has driven the local retail stores into a crisis. Online shopping is a more viable
option for many companies because they can eliminate some middle men, ride themselves of
marketing campaigns, and deliver a product in a manner that many people appreciate due to their
hectic lives (Coles, undated).
2.2.5 Socio-Cultural Effects and Consumer Behavior
Social/ cultural forces that can have implications for European vehicle producers are changes in
the demographic profile of the population, cultural differences, social responsibility and the
influence of consumer movement.
Consumer behavior defines the process that occurs when purchasing a product or a service. As
both have an impact on marketing decisions and also have some relationship (Op.cit, 2005).
i. Age distribution
There is a major demographic change in Europe, which involves the rising proportion of people
over 45 and the decline of the younger age group that will continue to affect demand. According
to a research made by Auto Bild, the industry could increase revenues by up to 5percent when
focusing on the growing older population with more disposable income available. However,
28
focusing on the young consumers, which will the older customers of tomorrow and can develop a
strong affinity to a certain brand during their lifetime might also be a good strategy. Producers
should develop segments that satisfy different age groups’ needs (Ibid, 50).
ii. Family plans
Families are more sensible when it comes to the purchase vehicles. Often budget plays an
important role and practical features like safety, space availability and consumption. This is a
special sector that is covered by most producers which often includes hatch backs and vans in
their product portfolios. Improvements in practical features as well as in price and quality can
create a competitive edge in this sector (Ibid, 52).
iii. Consumer Behavior/ Spending culture / Budget
Understanding consumer behavior, their spending culture and budget is crucial in industry to be
able to offer what the consumers’ wants or needs. It involves knowledge about who is important
in the buying process, how they buy, where they buy, when they buy, what are their choice
criteria. Also information on the decision making process can be helpful. Further two-thirds of
European sales and three-quarters in the UK are used cars. Finally because of huge depreciation
of vehicles, a new car has after 4 years or 60,000 kilometers of utilization depreciation by about
50 percent or more; private consumers generally regard them as a bad investment. Overall it can
be said that corporate customers are of greater importance to producers as they buy the largest
amount of vehicles. However, profit margins in the private sector are larger because discounts are
lower. The bad image of an investment in new vehicles is damaging and the over saturated
markets encourage purchasing of used vehicles as they drop further in price. These factors should
be taken in account when trying to improve sales (Ibid, 52).
iv. Social Expectations
Social expectations can be described as demands perceived by the society. It may be important to
some consumers, what other people think about their vehicle. A good brand image in certain
segments could therefore be helpful in capturing those sales. Producers working on and
improving their brands image could therefore realize positive market effects (Ibid, 53).
29
2.2.6 Competition
Another critical economic variable is the amount of competition in the firm’s industry-both the
number of competing firms and their relative strengths in the market place. Ideally, a company's
marketing and sales programs should be designed to gain a differential advantage over
competitors. For example, rather than trying to compete with the low process of foreign
competition -such as Komatsu- Caterpillar has been successful in the heavy construction equality
and excellent service, while charging prices as much as 20 percent higher than its competitors.
Reports that detail competitive activity, such as analysis of lost sales, can summarize competitive
activity for sales and marketing management (Churchill, 2003).
30
CHAPTER III: MATERIALS AND METHODS
3.1 Profile of Mesfin Industrial Engineering PLC
3.1.1 Background of Mesfin Industrial Engineering PLC
Mesfin Industrial Engineering (MIE) PLC was established in 1993 as the engineering way of the
endowment fund for the rehabilitation of Tigray (EFFORT) companies. It is located at the
northern part of Ethiopia, in the Tigray provincial capital, Mekelle which is far around 780 km
from Addis Ababa. Its manufacturing plant covers a total area of 120,000m2. It was initially
founded with a paid capital of Br. 7 million. Starting its activity by giving maintenance services
of vehicles & small-scale shop floor duties, pertaining to its long time vision & implementation
strategies, it is now the leading equipment manufacturing and industrial engineering company in
the East Africa. It designs and installs equipments and components for the energy, mining,
manufacturing, construction, transportation, and agricultural sectors. A wide range of products
is manufactured at its industrial complex, which is fully equipped with the state -of –the- art
machinery. Within its industrial complex, MIE has the full capacity to manufacture and erect
hydraulic power components such as penstocks, steel liners, gate liners, gates, turbine elements &
transmission. Its material testing laboratory provides radiographic, ultrasonic & other tests.
Currently MIE has 846 total number of employees. Out of this number 520 are permanent and
326 workers of different qualifications are also employed by the company as contract and subcontract employees. It has a current capital of 228million.
3.1.2 Scope of MIE
MIE in the Transport Industry
MIE designs and manufactures vehicle bodies, trailers, high and low-bed semi trailers as well.
MIE has a capacity of manufacturing over 1500 trailers and semi trailers per annum.
MIE in the Energy Sector
MIE has a full capacity of manufacturing and erecting hydroelectric components. It has a unique
rolling machine in East Africa that produces very large fuel storage tanks.
31
MIE in the Industrial Project
With the support of CAD and CAM software MIE designs, manufactures and erects industrial
components for cement, textile, brewery, food and sugar industry. Moreover, MIE manufactures
multi-purpose industrial cranes and boilers.
MIE in the Construction Industry
MIE manufactures a wide range of mobile and stationary crashing plants for the domestic and
export market. It also manufactures concrete batching plants, trans-mixers, tippers and other
similar construction equipments. Furthermore it manufactures steel bridge and constructs steel
buildings.
3.1.3 Vision, Mission, Values, and Sources of Competitive Advantage for MIE
Vision:
To be a fully-fledged ‘best in class’ engineering company in the electro-mechanical
and manufacturing sector.
Mission:
Creating superior value to owners, customers and employees and be a pioneer in the
industrialization of the nation.
Values:
•
Executing all works in a genuine, transparent and accountable manner.
•
Adding value, handle company property with maximum care and ensure efficient
utilization of resources.
•
Giving full customer satisfaction and strive to exceed their expectations.
•
Working hard to be best in class and lead the way for quality.
•
Building sustainable, closer, long-lasting relationship with customers and partners.
•
Always giving maximum respect to employees, customers and partners.
•
Ensuring employment; promotion and reward are based on merit, competence and
performance.
32
•
As the employees are the company’s main sources of competitive advantage, the company
therefore will create opportunities for continuous employee development and
empowerment.
•
Developing brotherhood among the employees.
•
Always ensuring safe working conditions to all employees.
•
Providing necessary support to employees as much as possible.
•
Always observing the law.
Objectives: The business purposes of Mesfin Industrial Engineering PLC are:
To design, manufacture, and erect industrial components for cement, textile, brewery,
food industry, storage tanks and so on.
To design and manufacture vehicle bodies, trailers as well as high and low bed semitrailers .More over, heavy duty trucks are assembled.
To provide service of renting of vehicles and machinery.
To provide maintenance of vehicles.
Where as the Motto of MIE is “MIE your Business Partner”.
Sources of Competitive Advantage
Professional, highly skilled and committed work force
Excellent reputation
Partner of first choice for government and reputed international companies
Acquirement of up-to-date equipment and production machines
3.1.4 Products of MIE
Generally MIE PLC products are the following:
I. The Product Mixes of the Company are:
33
•
3-axle draw bar dry cargo truck-trailer
•
3-axle dry cargo semi-trailer
•
2-axle dry cargo semi-trailer
•
Low bed-60 ton
•
3-axle draw fuel cargo truck trailer
•
3-axle fuel cargo semi- trailer
•
Dump Truck-Afro & Miller type (10m3, 14m3)
•
Antenna must (up to 60 meter height)
•
Underground and over ground tanker
•
Crusher (25-100 t/h)
•
Petroleum Reservoirs tanks (5000m3-5600m3)
•
Overhead crane (10t, 5t, 2t)
•
Bus body (40+1, 60+1 seat)
II. Services Rendered by MIE
i. Electromechanical erection services
Supply and erection of pre engineering buildings & towers.
Installation of machines and equipment.
Erection of petroleum reservoir tanks capacity of 5,600m3 with electrical and
instrumentation.
Erection and installation of HVAC system.
Installation of digital congress network, audiovisual system, stage lighting and machinery
installation.
ii. Renting of vehicles & machinery services
- Afro-damp truck-10m3 capacities
- Crane 50-ton capacity
iii. Maintenance of vehicle services
34
Light vehicle maintenance-Toyota, Nissan
Heavy vehicle maintenance-Afro Truck
3.1.5 Organizational Structure
The General Manager of MIE PLC is appointed by the chairman of the board of Directors.
Hierarchically, the General Manager is accountable to the Chairman of the board or corporate
management. Generally, the company has sixteen (16) departments that are under the supervision
of different positions. There are eight (8) different activities that are directly reported to the
general manager; namely;
DGM Operations & Engineering
DGM Projects
DGM Marketing
DGM Services
MR for QMS and quality assurance
Internal audit service
Legal service
Planning & Information Technology Department Manager
DGM represents- Deputy General Managers that mainly deal with conceptual activities to support
the General Manager. Within each DGM there are various departments.
The departments under DGM Operations & Engineering are;
Design & Technology
Manufacturing
Electro-Mechanical Work
Industrial Maintenance
Equipment Maintenance & Repair
The departments under DGM marketing are;
35
-Public Relations Service
-Sales & promotion
-Business development
The departments under DGM services are;
-Finance
-Supply
-Human Resource
3.1.6 Manufacturing Flow of MIE’s Products
There are three major manufacturing processes in the production of metal structure. These are
metal preparation, fabrication, and finishing & painting processes.
I.
Metal preparation and manufacturing flow
II.
Fabrication and manufacturing flow
III.
Finishing and Painting Manufacturing flow
3.1.7 Quality Certificate of MIE
The leading engineering company in Ethiopia, MIE has got ISO 9001:2000 quality management
system certificate No, 512406 from BSI for the following scope.
Design, manufacture and supply and service of Low Bed /High Bed Dry/Liquid Trailers.
Design, manufacture, supply and erection of petroleum liquid Reservoirs (including
Electrical /instrumentation system).
Supply and Erection of HVAC Systems.
Manufacture and supply of steel fabricated products for industrial application; and
vehicle equipment maintenance and renting.
36
3.2 Research Methodology
3.2.1 Research Design and Area Description
Mekelle which is the capital city of the Tigray regional state is one of the largest regional cities in
Ethiopia. According to Tigray investment office, Mekelle is located in the northern part of
Ethiopia at a distance of 778 km from Addis Ababa. It is situated at an average altitude of 2200
meters above sea level and its geographic coordinates are 390
281 east altitude and 130 321
longitude. The eastern side, Enda Eyesus ridges are the highest peaks of the city.
The major land form of the city territory can be classified into four categories namely: flat to
gently sloping, gently sloping to rolling, sloping to moderately steep and steeply to very steeply
sloping type. According to the report of the 2007 population and housing census, the city has a
total population of 215,546 of which 104,758 and 110,788 are males and females respectively
(FDRE population census commission, 2008)
This study was conducted on Mesfin Industrial Engineering PLC. The study is descriptive type
which has enabled the researcher to assess and describe the internal and external environmental
factors that affect the sales volume of the company. The researcher considered the eight year
sales figures of the company starting from 2002 to 2009 for the purpose of this study. These eight
consecutive years help to have a clear picture about the company’s sales trend from year to year.
In addition to this, for quantity of product sold and planned sales, a five year data of the company
has been used. This type of research was employed because it is used to identify and obtain
information on the characteristics of a particular issue.
3.2.2 Data Sources and Data Gathering Techniques
For undertaking this study both primary and secondary data have been used .The primary data
have been obtained from customers, marketing and sales department, and general manager of the
company. Further more, primary data were collected because secondary data were not adequate to
answer the research problem.
Hence to carry out this study, the researcher used both qualitative and quantitative data. In
collecting primary data both structured personal interview and questionnaire were employed. The
questions in the structured personal interview and questionnaire have included both open-ended
37
and closed-ended questions. The open-ended question helped the researcher to obtain information
about the feelings and intentions of respondents. Further more, structured interview was made
with the sales division manager and general manager of the company.
On the other hand, secondary data have been collected from the company’s unpublished
documents such as annual reports made by the company on production, purchasing, sales and
finance at different times.
3.2 3 Method of Sampling
A total of 25 companies found in Mekelle city were selected as a sample for the study. How ever,
22 out of the total selected sample were responded to the questionnaire. The company has about
100 customers composed of individuals and organizations. For the purpose of this study, 25
percent of the total was taken as a sample based on a simple percentage method. The researcher
has employed purposive sampling method to select the sample. The samples selected were
companies and the selection was made purposely based on the assumption that these companies
could provide adequate and meaningful information for this study.
3.2.4 Data Analysis
In analyzing the primary and secondary data collected, different methods of simple statistical
tools like tabulation, pie charts, graphs and percentages have been used.
3.2.5 Organization of the Paper
This project has five chapters. The first chapter contains the introduction, statement of the
problem, objective of the study, significance of the study, scope and limitation of the study. The
second chapter deals with review of literature. The third chapter deals with the methodology and
profile of the company. The fourth chapter deals with results and discussion of the data. While
the last chapter, chapter five concludes the results obtained from the research and provides
appropriate recommendations.
38
CHAPTER IV: RESULTS AND DISCUSSIONS
In this section of the project, the data collected is analyzed and presented in simple and
understandable manner. For simplicity and clarity purpose, both the results and discussions are
presented side by side. As explained in the methodology part, questionnaire was distributed to
customers and structured interview was made with the sales division manager and the general
manager of the company. Generally speaking, the target customers of Mesfin Industrial
Engineering PLC are transportation companies, manufacturing companies, trading companies,
service companies, and agricultural sectors.
Finally, in undertaking this study, the factors that are supposed to affect the sales volume of the
company are given due attention.
4.1 Factors Affecting Sales Volume
The existing theoretical literatures have shown that there are many internal and external
environmental factors that affect sales volume of a company. This project tries to assess the
internal and external environmental factors that affect the sales volume of Mesfin Industrial
Engineering PLC. In this chapter, internal factors like price, product quality, place( distribution),
and promotion mix elements and also external factors like natural, economical, technological,
political-legal and competition have been discussed .
According to Ato Sibhat Gebregiorgis (2010), the sales division manager of MIE PLC, the
company has many customers throughout the country and most of them are concentrated around
major cities. To mention a few, Trans Ethiopia Share Company, Messebo Cement Factory, Sur
Construction, REST, MA Garment, Dashen Steel Factory, Net Transport are some of the major
customers found in Mekelle and also there are other private limited companies that buy from the
company. In addition to this, all EFFORT companies and some other private limited companies
found in the region are also major customers of the company. Tikur Abay Transport, Shebelle
transport, Amiche transport, National Motors, Akida, National Petroleum Reservoir Depose
Association (NPRDA) are some of the customers found out side the Tigray region. The company
has no customer out side Ethiopia since it has not started exporting to other countries.
39
4.1.1 Internal Environmental Factors
4.1.1.1 Price
According to Monroe (2003), price is the only marketing strategy variable that directly generates
income. The author also said that all other variables in the marketing mix generate costs:
advertising and promotion, product development, selling effort, distribution, packaging –all
involve expenditures.
In the center of every business organization appears the issue of product prices. Businesses are
established to achieve, among other things, a certain level of profit to ensure the survival and
growth of the company as well as providing the owners with a return on their investment. Profit
can be obtained only if the revenue, which is determined by the price and quantity of products
sold, is greater than the cost of producing and supplying the product. In the contemporary
business environment, individual companies have no control over the level of prices of their
products. This is especially true when the product in question is abundant and supplied in the
market by many companies (Getinet, 2007).
According to the sales division manager, the company adopts cost of production as a base for
deciding the price of products. More specifically, the company is currently using mark up pricing
that is products are sold at a price that earns some margin after covering costs incurred in
producing and selling the products. However, cost based method does not allow the firm to
consider the current demand, perceived value, and competition. This implies that the company is
not considering the existing nature of competition and demand for its products. When customers
get an opportunity to get similar products at a relatively low price from other firms, it may lead to
loss of customers and ultimately loss of sales. The company also does not consider the price set
by other competitors. For a firm to compete effectively and to strengthen its position in its
respective industry, it needs to set a competitive price and even some times to charge a relatively
low price so as to be profitable in the long run.
According to the sales division manager of the company, the price of the products is high relative
to other competitors. According to him, the reason is that most of the raw materials and
component parts used by the companies are imported from abroad. The unavailability of adequate
local raw material supply leads the company to import raw materials from Europe and other
40
Asian countries. The cost associated with transportation, the tariff levied on imported items and
other costs like cost of production forced the company to charge higher price.
The other reason that the sales division manager pointed out for charging higher price is that the
product is quality product and its price says something about its quality. However, customer’s
perception of quality may vary. Sometimes, a product with a high price is not necessarily quality
and this is one element of quality misconception.
With regard to price of the product, 15 (68.2 %) of the respondents replied that the price of the
product is not competitive or fair where as the remaining 7(31.8 %) replied that the price is
affordable relative to other competitors.
Table: 4.1 Customer’s response to product’s price fairness
Response
Question
Frequency
Percentage (%)
Do you think that the price is Yes
15
68.2
7
31.8
22
100
affordable or competitive relative to
other competitors?
No
Total
Source: Own Survey, 2010
From the above data, it can be inferred that the price that the company is charging for its product
is high and this can have an impact on the company’s competitiveness and can put it at a
competitive disadvantage unless it undertakes further cost reduction strategies.
4.1.1.2 Product Quality
Regarding the products that customers buy from the company, 15(68.2%) of them reported that
they buy different types of trailers, 4(18.2 %) of them reported that they buy tractors &
machineries, and the remaining 3(13.6 %) reported that they buy spare parts, acetylene gas, and
41
equipments. From this figure, it can be inferred that majority of the customers buy trailer from the
company. This implies that the trailer has good demand in the market relative to other products
produced by the company.
Figure 4.1: Types of products customers buy
13.60%
68.20%
18.20%
Trailers
Tractors &machineries
Spare parts, Equipments
and Acetylene gas
Source: Own Survey, 2010
42
Table: 4.2 Customers’ rating to product quality dimensions
Quality
Rating
Factors
Total
Dimensions
Number
Very poor Poor
in
in
No
(%)
No %
Performance
Reliability
3
13.6
Durability
2
9.1
11
50
Conformance
in
3
13.6
Average
Good
Very good
in
in
in
No %
No %
No
9
13
59.1
14
63.7
3
13.6
22(100%)
8
36.4
22(100%)
19
86.4
15
68.2
17
40.9
77.3
Serviceability
Features
7
31.8
and (%)
%
22(100%)
5
3
22.7
13.6
22(100%)
22(100%)
22(100%)
Source: Own Survey, 2010
Performance
According to Kotler (2006), performance quality is the level at which the product’s primary
characteristics operate.
As can be seen from table 4.1, 13(59.1 %) of the respondents confirmed that the product has good
performance and 9(40.9 %) of them rated the company’s product performance as average. From
this figure, it can be inferred that the product that the company produces has an average
performance.
Reliability
According to Guiltinan (1997), reliability is the probability of a product failure with in a given
time frame.
43
Regarding reliability of the product, 14(63.7 %) of the respondents revealed that the product has
good reliability, 5(22.7 %) of them reported very good, and the remaining 3(13.6 %) reported
poor. Taking these data in to consideration, the reliability of the product is generally good and
this implies that the product’s performance is consistent.
Durability
Kotler (2006), defined durability as a measure of the product’s expected operating life under
natural or stressful conditions.
In relation to durability of the product, 17(77.3 %) of the respondents reported that the product’s
durability is average, 3(13.6%) of them reported that it is good, and the remaining 2(9.1 %)
reported that it is poor. From this figure, it can be inferred that the company still has to do more
to improve the durability of the product that it produces. Under normal circumstance an industrial
product is expected to serve its normal function for a relatively longer period of time and
customers will be exposed to unnecessary costs if the product is not more durable.
Conformance
According to Kotler (2006), buyers expect products that have high conformance quality, which is
the degree to which all the produced units are identical and meet the promised specifications.
Regarding conformance of the company’s product, 11(50 %) of the customers surveyed revealed
that it is poor, 8(36.4 %) of them replied that it is good, and the remaining 3(13.6 %) replied that
the company’s product conformance is very poor. The customers further pointed out that the
company is not doing according to their specification but according to specification provided by
it. This implies that the company could not produce products according to customers’
specifications and could not satisfy the needs and wants of its customers. However, for most
industrial products because of the importance given to the technical aspect of the products,
purchases are made according to the specification evolved by the buyers (customers).
44
Serviceability
Kotler(2006), defined reliability as a measure of the ease of fixing a product when it malfunctions
or fails with in a specified time period.
In connection with the above quality dimension, 19(86.4%) of the respondents replied that it is
good, the remaining 3 (13.6 %) replied that it is very good. From these data, it can be inferred that
the company’s product has good serviceability. This implies that it is not difficult for customers
to get repair and maintenance if the products fail to perform its function properly or if it is
damaged it can be easily repaired.
Features
According to Guiltinan (1997), features are the special supplemental characteristics that heighten
the use experience such as optional seat-cover materials in an automobile.
With regard to features of the product, 15(68.2 %) of the respondents rated the product as good,
and the remaining 7(31.8%) of them rated it as poor. According to the response of the majority, it
can be inferred that the product’s feature is generally good.
After Sale Service Support
Follow- up and maintenance service are necessary if the sales person wants to ensure customer
satisfaction and repeat business. Immediately after closing, the sales person should cement any
necessary details on delivery time, purchase terms, and other matters that are important to the
customer. The sales person should follow -up call when the initial order is received to make sure
there is proper installation, instruction, and servicing (Kotler, 2006).
According to the sales division manager, the company provides customers with repair and
maintenance, warranty, training as an after sale service support. In relation to this issue,
17(77.3%) of the customers confirmed that the after sale service provided by the company is not
enough. On the other hand, 5(22.7%) replied that the after sale service provided by the company
is relatively enough as compared to other competitors. In this case, the company has not been
providing enough after sale service support. Customers will keep up buying products when they
45
have confidence on the after sales services provided. The products sold by the company are
capital goods and customers need adequate after sale services.
Table 4.3: Customers’ Response to Adequacy of the After Sale Service/
Question
Response
Frequency
Percentage (%)
Do you think that the after sale service (like Yes
17
77.3
warranty, repair &maintenance, installation No
5
22.7
22
100
etc) provided by the company is enough?
Total
Source: Own Survey, 2010
In relation to warranty, 19 (86.4%) of the respondents reported that they get warranty for one
year. On the other hand, about 3(13.6%) of the respondents reported that the company has never
given them warranty when they buy products. From this figure, it can be said that the company
gives warranty to most of the customers.
According to the sales division manager, the company offers a one year warranty for all
standardized products. If there is any defect up on the products produced by the company,
customers can get services like repair & maintenance and spare parts to replace the damaged or
defective product with in the one year period only. However, any defect up on tyre or any other
component, for example, which is not produced/supplied by the company, will not be liable to get
warranty.
46
Table 4.4: Customers’ response to Warranty
Question
Response
Frequency
Percentage (%)
19
86.4
No
3
13.6
Total
22
100
Do you get any warranty for the Yes
product you purchase?
Source: Own Survey, 2010
Regarding customer’s preference for product origin, 5( 22.7%) of the respondents revealed that it
depends on the type of the product they need to buy and they pointed out that some times they
prefer to buy an Ethiopian product and at other times they prefer a product produced abroad. How
ever, 9(40.9%) of the respondents revealed that they prefer to buy a product produced in abroad
and their reason is that product produced in abroad is quality product. On the other hand, the
remaining 8(36.4%) revealed that they prefer to buy an Ethiopian product and they mentioned
that it is when they buy an Ethiopian product that they can get different types of after sale support
services like warranty, repair & maintenance services nearby. From this figure, it can be inferred
that the perception that a product produced in abroad is quality product is still in the minds of the
majority of the customers (please see figure 4.2).
47
Figure 4.2: Customers’ reply to Product’s Origin Preference
22.70%
40.90%
36.40%
Ethiopian Product
Foreign Product
It depends
Source: Own survey, 2010
With respect to customers’ preference of the company’s product, 7(31.8%) of them replied that
they prefer the company’s product due to its good performance, 12(54.6%) of the respondents
replied that they prefer to buy it due to its readily availability (proximity), and the remaining
3(13.6%) replied that they prefer it due to its durability. From this figure, it can be inferred that
more than half of the customers preferred the product due to its readily availability or proximity.
This is to mean that customers buy the company’s product because they get it nearby and also
they have easy access to it (please see figure4.3).
48
Figure 4.3: A pie chart showing why Customers Prefer the Product
13.60%
Due to its proximity
Due to good performance
Due to its durability
31.80%
54.60%
Source: Own survey, 2010
Regarding the problems that customers face in relation to spare parts to vehicles, 15 (68.2%)
reported that they have problems related with availability, 5(22.7%) reported that they have
problems related with the durability, and the remaining 2(9.1%) reported that they face problems
related with the price of the spare parts and they pointed out that the price of spare parts is not
competitive. From these data, it can be inferred that availability of spare parts is the major
problem that customers face that is customers can not get spare parts easily. This could hamper
production or service delivery on the part of customers when the item in question is not easily
accessible (please see figure 4.4).
49
Figure 4.4: A Pie Chart showing Customer's Problem in relation to spare part
9.10%
22.70%
Availability
Durability
Price
68.20%
Source: Own Survey, 2010
Sales Credit
According to the sales division manager, the company currently does not provide its customers
with credit. Most of the products produced by the company are capital goods which demand huge
amount of money to acquire and customers need credit to own and use the product. Before five
years the company started to give credit to customers but there was much bad debt. The
customers could not repay for the loan /credit they took it from the company and the company
stopped giving credit to customers.
50
4.1.1.3 Place (Distribution)
Place is concerned with various methods of transporting and storing goods, and then making
them available for the customer. Getting the right product to the right place at the right time
involves the distribution system. The choice of distribution method will depend on a variety of
circumstances. It will be more convenient for some manufacturers to sell to wholesalers who then
sell to retailers, while others will prefer to sell directly to retailers or customers. 1
In connection with delivery, 16(72.7%) of the respondents revealed that the company does not
deliver them the product they ordered at the time they need it, but the rest 6(27.3%) replied that
the company delivers them the product they order at the right time. From this figure, it can be
said that the delivery status of the company is poor and it could not consider the importance of
timely delivery to customers. This is because customers may need the product urgently to carry
out their normal operation and with out it there could be no production of good or service at all.
Table 4.5: Customers’ reply to Delivery
Question
Does the company deliver the product you
Response
Frequency
Percentage in (%)
Yes
16
72.7
No
6
27.3
Total
22
100
order at the right time?
Source: Own Survey, 2010
The company currently has only two sales branches. One is in Addis Ababa city and the second is
in Mekelle city where the company is located. It has no any sales agents or distributors through
1
(http://www.thetimes100.co.uk/theory/theory-marketing-mix(price-place-promotion-product)-
243.php).
51
out the country. This implies that the company has limited its distribution only to few areas.
According to the sales division manager, the company sells its products directly to final
customers and there are no intermediaries between the company and the final customer. This
implies that the company adopts a direct distribution channel.
4.1.1.4 Promotion Mix
The marketing communications or promotion mix is the specific mix of advertising, personal
selling, sales promotion, public relations, and direct marketing that a company uses to its
marketing objectives.
Advertising
Advertising is rarely used for promoting industrial products. The complexity of most industrial
products coupled with buyers’ expectations and unique information needs requires personal
contact. Not only is industrial advertising is an effective means of reaching inaccessible or
unknown buying influencers it also creates awareness, enhance the effectiveness of sales call and
increases the over all efficiency of selling effort .
According to the reply of the sales division manager, the company promotes its products via
Advertising. The reason for the choice of this media is that most of its customers are concentrated
around major cities and the message can reach them easily. The company advertises for the newly
introduced products through TV to create awareness about the product and to reach in accessible
places. More specifically, the company has been using Ethiopian Television to promote products
like Gelley car and Sonalika tractors. How ever, according to the sales division manager, the
company uses TV advertising when it introduces new products and its objective is to create
awareness of customers about the product. The problem with TV advertising is that it is rarely
used by the company. This implies that it is not sufficient for the company’s product to be heard
above the noise in the market. In addition to TV advertising, the company uses print advertising
or print media like magazines(selamta), News letters (Mesfin News Letters ), and News Papers (
Weyin ) to promote its products. However, the circulation of Mesfin News Letters and Weyin
newspaper is less and can not reach to all potential customers. In this case, the role of personal
selling as a promotion tool has been ignored or it has been given little attention which is the most
52
preferred one particularly for industrial products. When ever customers want to buy an industrial
product they need detail information on it due its complexity and technical nature and as the
product will be used for a relatively longer period of time.
Personal Selling
Personal selling composes the use of presentations in order to convey the benefits of the
company's products and services. As a general rule, goods that are new, technically complex,
and/or expensive require more personal selling effort. It is obvious that the company’s products
are more technically complex and expensive. Consequently, using personal selling as promotional
mix will have more benefits for the company. Despite this fact, personal selling as a promotion
tool is not widely used and practiced by the company.
The educational level and background of the sales persons of the company was also assessed in
trying to show its impact on sales performance. The sales persons who are currently working in
the company are graduated in management, economics, and industrial engineering. All
salespersons of the company are degree graduates except one who has got advanced diploma in
industrial engineering. In this case, the role of marketing and sales graduates has been given little
attention. In reality, sales persons must know and understand the products they sell, the product’s
features, and its advantages but, most importantly of all, the benefits of what the product can do
for the customer. The sales persons should also know the market conditions, industry trends, and
competitive tactics. When we see the educational background of the sales persons of the
company, it seems that the management principle “the right person for the right position” has
been given little attention or almost ignored.
Improving individual’s sales performance by training is a key management task. The sum of the
parts being more efficient and effective in selling lies in increasing the number of calls, in
improving the quality of calls and in communication. The reason for training is to improve
performance by increasing sales, reducing costs and adopting better work practices (Donaldson,
1998).
According to the sales division manager, the company does not provide periodic training to its
sales force. This is due to lack of well experienced trainers in the country. He also said that the
53
company in collaboration with Mekelle University has tried to provide training to its sales force,
how ever, the training was all about theories and principles of marketing and it was not practical.
This is because it did not consider the real environment where the company is operating. He also
added that there is a weakness in the training division of the company because it could not
arrange program for training by calling experts even from abroad. Customers’ reply to the sales
forces’ characteristics is provided in the table given below.
Table 4.6: Customers’ rating to Sales person’s Characteristics
Sales
person’s
Rating factors
Total
characteristics
in
number&
Very
Poor in
poor in
No
%
Average
Good
Very Good
in
in
in
No
%
No
%
No
%
6
27.3
2
9.1
14
63.3
5
22.7
13
59.1
No
(%)
%
Product knowledge
22(100%)
Communication
skill
4
18.2
22(100%)
Market knowledge
Knowledge
2
9.1
15
68.2
5
22.7
22(100%)
2
9.1
12
54.5
8
36.4
22(100%)
14
63.6
of
competitors’
product
Offer an opinion or
have
a
clear
recommendation
8
36.4
about a better offer
Source: Own survey, 2010
54
22(100%)
Product Knowledge
As can be seen from table 4.6, 14(63.3%) of the respondents replied that the sales persons of the
company has good product knowledge, 6(27.3%) replied that the sales persons’ product
knowledge is poor, and the remaining 2((9.1%) replied that the sales persons’ product knowledge
is average (medium). From this figure, it can be inferred that the sales persons have good
knowledge about the product they sell and they can provide customers with the information they
need.
Communication Skill
Regarding the communication skill of the sales persons of the company, 13(59.1%) of the
respondents rated them as very good and 4(18.2%) rated them as very good. How ever, the
remaining 5(22.7%) rated them as poor. From these data, it can be inferred that the sales persons
of the company have good communication when they deal with their customers. This implies that
the sales persons can easily transmit information to customers about the product they sell.
Market Knowledge
An essential component of the sales job is to provide management with information on
competitors, market condition and trends. Sales people may tend to parochial in outlook but
intelligently collected information from diverse sales areas can be used to form a composite
picture (Donaldson, 1998).
In relation to the market knowledge of the sales persons of the company, 15(68.2%) of the
respondents confirmed that the sales person’s market knowledge is poor, 5(22.7%) confirmed that
it is good, and the remaining 2(9.1%) replied that the sales persons’ knowledge about the market
is very poor. From these data, it can be inferred that the sales persons of the company do not have
sufficient knowledge about the market in which they are operating. Market knowledge provides
insight in to the strengths and weaknesses of competition, the pricing and profitability of
products, and ultimately, the current and future needs of customers. However, the sales persons of
the company lack knowledge about the market that the company is competing in.
55
Knowledge of Competitors’ Product
Combined with and part of product knowledge must be a detailed knowledge of competitors’
products. In addition, sales people must know and understand their competitor’s sales policies,
organization, and pricing and promotion tactics. Knowledge of competitors will enable positive
benefits for a product to be identified and more closely matched with customers’ needs and wants
(Donaldson, 1998).
In line with the above, 12(54.5%) of the customers surveyed revealed that it is poor, 2(9.1 %)
revealed that it is very poor. On the other hand, 8(36.4%) revealed that it is good. From this
figure, it can be said that the salespersons of the company do not have enough knowledge about
the competitors’ products. Unless sales persons know the products that are offered by other
competitors it will be difficult for them to compare the benefits of their offer with competitors’
product. Further more, a sales person has to know the offer of other competitors and he/she has to
able to compare the limitations and benefits of his/her product with competitors’ product.
Offer an opinion or Give clear recommendation
Regarding this issue, 14(63.6%) of the respondents reported that the sales persons’ effort to give
an opinion or clear recommendation about a better product is poor, and 8 (36.4%) revealed that
the sales persons’ attempt to give an opinion or recommendation about a better offer is average
(medium). From this figure, it can be inferred that the sales persons of the company are generally
poor in giving recommendation about a better offer to their customers.
The information obtained from the sales division manager shows that the company does not
provide its sales persons with bonus, commission and other benefits. According to the sales
division manager, the company has no any plan regarding these issues. This implies that the
company is not motivating its sales force as needed. Unless sales persons are motivated they
could not achieve a level of sales volume which can lead to profitability of the company.
56
Sales Promotion
Kotler (2005) stated that where as business promotion includes many of the same tools used for
consumer or trade promotions but mainly conventions and trade shows and sales contests are
used for business promotions.
The company uses the techniques of sales promotion which include gift materials, exhibition and
trade fairs from the various alternatives of sales promotion techniques. In 2008, the company had
participated in an exhibition which was conducted in Sudan entitled ‘Ethio-Sudan Trade and
Cultural Fair’. The main objective of the company in that exhibition was market assessment
(MIE’s News Letter).
Sales promotion as a promotion tool is not widely used by the company. Generally, the company
participated in exhibitions/fairs arranged internationally and locally. The company used
exhibition as promotional mix to obtain potential market and promises from target audiences.
Public Relation
According to Kotler (2004), public relation is building good relation with the company’s various
publics by obtaining favorable publicity, building up a good corporate image, and handing or
heading off unfavorable rumors, stories and events.
The company promoted its image by sponsoring different events, making audio-visual
presentations, seminars, magazines, newsletters that help to improve its image and reputation.
4.1.1.5 Shortage of Inventory
Inventory is defined as a company’s merchandise, raw materials and finished products that are on
hand at the end of each period. As the company produces goods based on customers’ demand, it
does not hold any inventory of finished goods.
According to the information obtained from the sales division manager, the company has faced
shortage of both raw material and finished good inventory in the previous year. In the year
2008/09, there was shortage of raw material. In the 2008/09 budget year, the total amount spent
57
on foreign purchase of raw material was 10,325,237 Birr. On the other hand, actual foreign
purchase of raw materials in 2006 and 2007 budget year was 35,362,626 and 32,577,693 Birr
respectively. Hence, the actual foreign purchase of raw materials was less in the 2008/09 budget
year as compared to the actual purchase of raw materials in 2006 and 2007(Please see table 4.8
&4.9). The company could not get enough raw materials for the production of goods and this was
due to lack of adequate foreign currency. More over, customers’ order received was not served
accordingly as the company could not get enough raw materials for the production of the items
ordered.
Inventory Turnover The inventory turnover ratio measures the efficiency of the business in
managing and selling its inventory. This ratio gauges the liquidity of the firm’s inventory.
Inventory Turnover =
Cost of goods sold
Average Inventory
For the purpose of this paper, six years data (2004-2009) has been taken to show the relation ship
between sales volume and inventory turn over rate of the company.
Table 4.7: Inventory turnover trend of MIE
Year
Particulars
2004
2005
2006
2007
2008
2009
Cost of
goods
sold
64,589,036
42,387,461
109,805,707
150,281,926
135,962,654
138,375,552
Average
84,518,011
68,491,639
78,094,092
94,551,414
116,980,635
106,578,128.24
0.76
0.62
1.4
1.6
1.2
1.3
inventory
Inventory
Turnover
(times)
58
Source: Financial Statements of MIE
Table 4.7 depicts the inventory turn over ratio of the company for the last six years. As can be
seen from the above table, sales can be related with inventory turn over and they are directly
proportional. For example, the inventory turn over rate of the company in 2004 was higher than
the inventory turn over rate of 2005. However, after that year it had shown an increment until
2007. By 2008, the inventory turn over rate had shown a decrement. In 2009, how ever, the
inventory turn over rate was rose up. Similarly, the sales volume estimated in terms of Birr in
2004 was higher than its immediate successive year. After 2006, the sales figure had shown an
increment until 2007. By 2008, however, the sales volume again dropped. The sales figure of the
company in 2009 had shown again a small increment as compared to its preceding year (Please
see Table 4.10).
4.1.2 External Environmental Factors
4.1.2.1 Natural Factors
Unavailability of raw materials is the other main problem contributing to the underutilization of
existing capacity of the company. According to the information obtained from the sales division
manager, most of the raw materials and component parts are obtained from foreign
manufacturers. For example, steel materials are imported from Turkey, Ukraine, Germany, and
Italy. This shows that there is no proximity between suppliers of its raw materials and the
company. This can create unnecessary delays, and an increase in the price of the product due to
transportation cost and tariff imposed on imported items. For a company to produce and serve
customers’ order at the right time, it needs to be with in a close proximity to suppliers.
To overcome the problem mentioned above, the company sometimes tends to buy its raw
materials from local dealers but the raw materials and other items purchased from the local
market are subjected to some modifications which is another cost to the company. When we
compare the amount of money spent on foreign and local purchase, local purchase of raw
materials and other items accounts for a small percentage of its total purchase. Raw materials and
other items that the company purchases locally include carbon dioxide, tyres, and paintings.
59
Table 4.8: Comparison of Local and Foreign Purchase of items of MIE
No
1
2
3
Description
Raw materials
Comp &Accessories
Consumables & other
supplies
Spare parts
Construction
materials
Imported Tractors
&Vehicles
Capital goods
Total
4
5
6
7
Actual purchase of 2006/2007(in Birr)
Actual +estimate Purchase of 2007/2008
(In Birr)
Local
Foreign
Total
Local
Foreign
Total
4,814,949
13,889,126
3,177,630
35,362,626
67,222,185
1,916,966
40,177,575
81,111,311
5,094,595
3,435,677
6,790,465
7,092,156
32,577,693
69,097,655
1,644,076
36,013,370
75,888,121
8,736,232
5,643,295
2,573,545
-
2,594,831
-
5,168,376
-
2,732,980
8,157,551
2,910,315
-
8,157,551
-
-
-
-
-
-
8,523,142
32,978,392
817,559
107,914,166
9,340,701
140,892,559
5,124,670
33,333,500
4,244,891
110,474,630
9,369,561
135,650,579
Source: Operational plan of MIE
Table 4.9: Comparison of Local and Foreign Purchase of items of MIE
No
1
2
3
4
5
6
7
Description
Raw materials
Comp &Accessories
Consumables & other
Supplies
Spare parts
Construction materials
Imported Tractors
&Vehicles
Capital goods
Total
Actual purchase of 2008/2009( In Birr)
Planned purchase of 2009/2010(In Birr)
Local
Foreign
Total
Local
Foreign
Total
3,758,936
40,326,749
3,155,797
10,325,237,
13,520,886
11,672,896
14,084,173
53,847,635
14,828,693
2,340,173
7,148,309
2,257,806
44,463,285
45,468,091
528, 608
46,803,458
52,616,400
2,786,414
2,227,560
-
3,282, 622
-
5,510,183
8,272,742
-
41,789,655
-
16,320,000
34,775,000
16,320,000
41,789,655
34,775,000
2,352,198
51,821,241
1,717,609
48,791,992
4,069,807
100,613,233
53,535,943
141,554,984
195,090,928
Source: Operational plan of MIE
As illustrated in table 4.8, the total foreign purchase of the company estimated in Birr for the year
2006/07 accounts for 77 percent of total purchase accomplished by the company. On the other
hand, local purchase accounts only for 23 percent of the total purchase made by the company.
60
This shows that for that year the company spent the lion share of its purchase budget on items
imported from abroad and one can estimate how much foreign currency is required to import
these items from abroad. For most items with the exception of capital goods and consumables &
supplies, the monetary value of items purchased from abroad is higher than the monetary value of
the items purchased from local market. In that year the company did not purchase any
construction materials and tractors from foreign or local suppliers.
By 2007/08, the amount spent on foreign purchase generally accounts for 76.8 percent of the
total purchase where as local purchase accounts only for 23.2 percent of the total purchase
accomplished by the company. This shows that the company spent much of its purchase budget
on items purchased from abroad. With the exception of capital goods, construction materials, and
consumables & supplies, the amount of money spent on other imported items is higher than the
amount spent on items purchased locally. In the purchase budget of 2007/08, the word “Estimate”
implies that for that year the budget was closed earlier than the regular time and the purchasing
department added an estimated purchase of items for three months. By 2007/08, the company
purchased construction materials only from local suppliers but it did not purchase tractors from
either of the two suppliers.
Table 4.9 demonstrates that the actual foreign purchase of 2008/09 is 48.5 percent of the total
purchase and the local purchase accounts for 51.5 percent of the total purchase of items by the
company. This shows that the amount of money that the company spent on local purchase for that
year is higher than the amount spent on foreign purchase and this is due to the economic and
financial crises that happened in USA and other European Countries. This in turn had resulted in
shortage of foreign currency and the company decided to purchase more of the items from the
local market. As compared to the actual foreign purchase of raw materials and components &
accessories of 2007/08, the amount of money spent on imported raw materials and components &
accessories was reduced significantly. In that year the company did not purchase construction
materials and tractors from foreign or local suppliers.
In 2009/10, the total foreign purchase is expected to be 72.6 percent; however, the total local
purchase will be only 27.4 percent of the total purchase which is going to be accomplished by the
company. In the 2009/10 budget year, the company planed to obtain tractors and spare parts only
61
from abroad and the amount of money to be spent on the purchase of raw materials and
accessories has increased significantly as compared to its preceding year. On the other hand, the
company planned to buy its consumables and supplies more from the local suppliers. How ever,
the company has no plan to buy capital goods from either local or foreign suppliers.
Generally, the company is highly dependent on foreign suppliers and only less amount of money
is spent on local purchases. This is due to the absence of local firms or suppliers who can provide
adequate raw materials and other component parts. In addition to this, the amount of foreign
currency required to import items is high and this is a loss to the company and to the country at
large due to the out flow of foreign currency.
4.1.2.2 Economic Factors
According to Tamminga (2008), economic factors include the nature and direction of the national
economy in which a company does business. The author also stated that the availability of credit,
the amount of disposable income, inflation, interest rates and a given country’s GDP are other
economic factors that can hinder or help a firm’s marketing efforts.
The global financial and economic crises has also greatly affected the sales volume of the
company as most of its raw materials and other component parts which are necessary for the
production of goods are imported from abroad and to purchase these items the company needs to
have enough foreign currency. However, due to the financial and economic crises there was lack
of foreign currency in the year 2008/09. More over, the financial and economic crises has resulted
in the depreciation of Birr against major hard currencies which directly affects the price of raw
materials and other items imported from abroad. As a result of this, the sales volume of the
company in 2008 had declined and the main reason for that was lack of raw materials and other
component parts. This shows that the economic dawn turn has had its own impact on the
company’s sales. When there is no adequate raw material supply the company could not produce
and sell and there would be a probability of loss of orders and this in turn leads to customer
dissatisfaction which ultimately result in loss of sales.
According to Ato Tewelde Asfaw (2010), the general manager of Mesfin Industrial Engineering
PLC, the current economic policy of the country has its own impact on the entire operation of the
62
company particularly sales. In explaining this issue, he also said that the government is currently
engaged in the expansion of infrastructures that contribute a lot to the country’s development.
The government is highly participating in the construction of roads, houses, and dams or hydro
electric plant for generating electric power. To facilitate this, the government is importing raw
materials and other items which are necessary for the implementation of such projects. Hence,
this in turn would result in an increase the demand for trailers produced by the company for
transporting raw materials and other imported items from the port to the different areas of the
country. On the other hand, the expansion of projects like hydro electric plant creates an
opportunity for the company to participate in the project because the company has a capacity to
manufacture and erect hydro electric components such as penstocks, steel liners, gates and
reservoirs. For example, the company has been involved in radiographic testing of Tekeze hydro
power plant project, erection of petroleum storage tanks and stainless steel at Sululta and Dashen
Brewery respectively.
However, the tariff imposed on imported items has created a difficulty in the company’s
competitiveness. The tariff levied on imported items, the transportation cost, and production costs
make the price of the product to be high which in turn will make the company difficult to
compete with other competitors.
4.1.2.3 Competition
Competition includes all the actual and the potential rival offerings and substitutes that a buyer
may consider. Competition represents only one force in the environment in which the company
operates (Kotler, 2006).
According to the general manager, the company is competing not only domestically but also with
many international firms. The competition in the domestic market is not that much a threat for the
company because most of the domestic competitors have no capacity to compete with the
company. In the international market, how ever, the competition is getting fierce. For example, in
the trailer’s market, there are competitors from Italy, India and Germany.
The company is locally competing with small Ethiopian firms like MARU, TECHALE, KG
Engineering, and Nazreth Tractors Assembly Plant. According to the sales division manager, how
63
ever, these firms have limited capacity as compared to Mesfin Industrial Engineering PLC. He
also said that the company is competing not only with domestic firms but also with foreign firms
like Calabrese &RLFO of Italy, Mamut of Dubai, and Giyad. This is because local dealers are
carrying brands of these manufacturers. From this it can be inferred that foreign manufacturers
are entering in to the domestic market and this can lead to a decline in the company’s market
share.
4.1.2.4 Technology
Technology continues to improve at an exponential rate. The best companies stay on top of
technological changes and use them to get more work done in a shorter period of time. Marketers
must be aware of the changes that may affect their businesses and industries. New devices,
strategies, and techniques can help businesses stay ahead of the competition and avoid
obsolescence (Tamminga, 2008).
The company obtains most of its raw materials from abroad and it is processed at the processing
center of the company. After the raw material is processed, it will become semi finished good and
the semi finished good needs components and accessories to be a complete or finished product.
This situation leads the company to engage in make or buy decision. However, currently the
company has no technology to produce these accessories &components. For example, the
company can not produce Axle which is used to transfer energy from the engine through a
propeller shaft to the wheels in order to move the vehicles. The alternative that the company
currently has is that to buy these components accessories either from local dealers or from foreign
suppliers. Buying from foreign supplier in turn would lead the company to be exposed to lack of
foreign currency, high transportation costs, and possible delay of raw materials(please see figure
4.5). The lack of technology makes the company not to be competitive with other firms in the
international market.
The following figure shows how the company is affected by lack of technology to produce
components and accessories.
64
Figure 4.5: Shows how Technology Affects MIE’s Competitiveness
Raw materials
Processed
Local
dealer/Suppli
er
Foreign
Supplier
Compo
nents
&access
ories
Semi finished
goods
Finished
good
Make or
Buy
Decision
Source: Own Survey, 2010
In addition to capital goods, the company is providing repair and maintenance service to
customers but a number of small firms are providing such kind of services and it is
disadvantageous for the company to stay in this area of business as there are many small firms in
the city and other parts of Ethiopia. The company also could not acquire the technology which
enables it to transform its existing situation to the automobile industry. More over, the use of
internet for buying and selling is not well practiced by the company. Since we are in the era of
globalization where the world is getting smaller and smaller, the use of internet as a promotion
tool and as means of getting orders from customers becomes crucial.
4.1.2.5 Political and Legal Condition
It is known that all business organizations are operating under the rules and regulations of a
government. Similarly, Mesfin Industrial Engineering is one of the business organizations which
is doing business under the rules and regulations of the Ethiopian government. The company has
come into existence with the coming of the ruling party to power. Thus, the existing political and
legal conditions of the country with its favorable economic policy on manufacturing industry,
65
provides the company a conducive environment to sell its products in the domestic market. The
political stability in the country has also enabled the company to participate in trade fair/
exhibition conducted at national and international level.
Efforts have been made by the Ethiopian government on liberalizing foreign trade which enabled
the country to participate in the global economy. In addition to this, the government is motivating
to firms who are engaged in export business. This is one opportunity for the company to export
its products to abroad. On the other hand, the tariff imposed on imported items and the regulatory
requirement set by the government on specification of the products to be made has created
problems in the company’s competitiveness. The tariff levied on imported items is one factor that
forced the company to charge high price which creates difficulty in competing with other
international firms. In addition to this, the government’s regulation on specifications of the
product to be made is another factor that affects the company’s ability in satisfying customer’s
requirements. This is because the product that customers ordered is made according to the
specification set by the government not according to their own specifications.
The Ethiopian government has been doing its level best in creating conducive atmosphere for the
export of Ethiopian products. It has not only given recognitions for exporters who have
succeeded in quantifying Ethiopian yearly export volumes but also exerted tremendous effort to
further enhance their success. Awards were given in view of high performances in the export of
coffee, leather and leather products, garments, textiles and flowers.1 Hence, this can encourage
the company to participate in the export business and thereby getting foreign currency.
4.2 Challenges and Opportunities
According the general manager, the opportunities and challenges of the company are listed as
follows:
Opportunities
The country has shown a remarkable economic growth for the last five years and this in
turn leads to an increase in the demand for the company’s products and services.
. (Waltainfo.com, 2008). 1
66
An increase in the number of firms engaged in construction activities and an increase in
the number of projects would have the potential for the company to sell its products and
engage in installation activities of different projects.
ADLI (Agricultural Development Led Industrialization) strategy, which focuses on
ensuring rapid industrial development that produces input and consumptions goods that
are suitable for the agricultural sector, and on adding value to agricultural products, which
in turn is believed to guarantee backward and forward linkage between agriculture and
industry. Hence, this would result in an increase the demand for the company’s product.
The presence of peace and stability in the country enable the company to carry out its
operations properly.
The increase in the number of financial institutions in the country can enable the company
and its customers to have good access to credit.
The company has also a potential to export to South Sudan. Recently, the company has
agreed with South Sudan up on the possibility of export of some products.
Challenges
o An increase in the number of firms who are engaged in similar activities in the industry
makes the competition to be stiff and fierce.
o The absence of firms who can supply raw materials in the country makes the company to
go abroad in search of raw materials and the possible delay that can be encountered in
getting supply.
o Unethical practices and corruption makes the company not to participate in bidding for
different types of projects. This is because other firms who have no capacity are involved
in undertaking many projects.
o Depreciation of an Ethiopian Birr against major hard currencies leads to the lack of
foreign currency.
67
o Interruption of electric power
Further more, according to the general manager, Mesfin Industrial Engineering PLC is the
leading equipment manufacturing and industrial engineering company in the East Africa. How
ever, due to lack of adequate market for the product, delay of raw materials, and power
interruption the company could not use its full capacity.
4.3 Trend of Sales Volume
To assess the past and the present sales trend of the company an eight year sales figure is
obtained. The total planned and actual sales volume achieved for the last five years is
summarized in the table given below as follows.
Table 4.10: Planned Vs Actual Sales figures (in Birr)
Years
2005
2006
2007
2008
2009
Planned Sales
109,659,451
212,923,859
419,205,454
268,294,727
184,723,440
Actual sales (in Birr)
49,755,736
153,587,067
197,855,859
167,761,775
170,329,510.26
72.1%
47.2%
62.5%
92.2%
Performance
in 45.4 %
percentage
Source: Financial Statement of MIE
Table 4.10 shows the planned and actual sales of the company for the last five years. In 2005, the
actual sales was less than the planned sales and the sales performance for that year was 45.4
percent that is the company’s sales plan was achieved by 45.4 percent. By 2006, how ever, the
company’s sales performance was relatively high as compared to the sales performance of 2005.
The sales performance for the year 2007, 2008 and 2009 was 47.2, 62.5 and 92.2 percent
respectively and it had shown an improvement in the company’s sales performance and the
68
planned sales figure was somewhat achievable. How ever, in 2007, the planned sales seems
unattainable and there was a big discrepancy between planned and actual sales. This shows that
the company has problem regarding sales forecasting.
In 2005, the company’s actual sales was lower than the actual sales of 2004 and it had decreased
by 32.6 percent. After 2005, the actual sales figure of the company had continuously increased
for two consecutive years that is from 2006 to 2007. By 2006, the sales volume had increased
almost three fold as compared to the sales volume of 2005. In 2008, the actual sales of the
company again declined by 15.2 percent as compared to the actual sales of its immediate
preceding year. By 2009, how ever, the actual sales figure had increased by 1.5 percent as
compared to the actual sales of 2008. From this figure, it can be inferred that the sales volume of
the company has shown a fluctuation over the past five years.
For illustration purpose the comparison of actual and planned sales of Mesfin Industrial
Engineering PLC is shown in the graph given below.
Graph 4.6:
Planned Vs Actual Sales of MIE
Graph 4.6 Planned Vs Actual Sales
450000000
400000000
Sales (in Birr)
350000000
300000000
250000000
Planned Sales
200000000
Actual Sales
150000000
100000000
50000000
0
2005
2006
2007
2008
Year
Source: Financial Statement of MIE
69
2009
As can be seen from figure 4.7, the sales trend of the company initially continuously decreased
until 2005 and after that it had shown an increment up to 2007.By 2008, the sales trend of the
company again dropped. In 2009, however, the sales volume had shown a small increment.
For illustration purpose, the sales trend of the company for the last eight years is shown below
graphically.
Figure 4.7: Trend of sales volume of MIE
Figure 4.7: Trend of sales volume
250,000,000
Sales (in Birr)
200,000,000
150,000,000
Sales
100,000,000
50,000,000
0
2002
2003
2004
2005
2006
2007
2008
2009
Year
Source: Financial statement of MIE
Sales by product type (mix)
The company produces and sells different types of industrial products. Some of the products
produced by the company include Dry Cargo Truck, Dry Cargo Trailer, Fuel Cargo Trailer, Fuel
Cargo Truck, Dry &Fuel Cargo Semi-Trailer, and Low Bed. The following table shows the
70
quantity sold of some standardized products of the company for the last five years (i.e. 20052009).
Table 4.11: Quantity of product Sold (2005-2009)
No.
Type of product
Quantity of product sold
Total
Years
2005
2006
2007
2008
2009
1
Dry Cargo Trailer
277
466
75
15
372
1205
2
Dry Cargo Truck
269
442
57
9
352
1129
3
Fuel Cargo Trailer
1
119
78
3
12
213
4
Fuel Cargo Truck
0
119
78
3
11
211
5
Dry Cargo Semi-Trailer
17
36
35
11
414
513
6
Fuel Cargo Semi-Trailer
0
1
43
19
100
163
7
Low Bed
0
0
3
3
27
33
Total
564
1183
369
63
1288
3467
Source: Company’s unpublished report
As illustrated in table 4.11, the quantity sold of Dry Cargo Trailer had increased in the year 2005
to 2006 by 68 percent and then it had shown a decreasing trend from 2006 to 2008 and this was
because many customers cancelled orders due to lack of bank loans. Banks had declined to give
loans to new customers due to oversupply of dry cargo truck& trailers. In 2009, there was a
tremendous increment in the quantity sold of Dry Cargo Trailer.
With regard to the quantity sold of Dry Cargo Truck, there is a similar trend with the quantity
sold of Dry Cargo Trailer that is from 2005 to 2006 it had shown an increment and then it had
continuously decreased from 2006 to 2008 because customers could not get loan from bank. In
the year 2009, the quantity sold of Dry Cargo Truck had increased by 97.4 percent.
71
From 2005-2006 the quantity sold of both Fuel Cargo Trailer and Fuel Cargo Truck had increased
tremendously and after that year the quantity sold of both products had shown a significant
decrement until 2008 because customers could not get bank loans. In 2009, the quantity sold of
both products had shown a small increment. In 2005, there was no any sale of Fuel Cargo Truck.
Regarding the quantity sold of Dry Cargo Semi-Trailer, there is an increasing trend from 20052006. After 2006, it had shown a decrement for two consecutive years that is from 2007 to 2008.
During that time, although attempts were made to promote MIE’s trailers by inviting general
manager of one transport company (Abbarachi Transport) to visit MIE’s facility and see the
prototype trailer and participating in a trade fair in Gedarif Sudan. But the company could not be
able to sell trailers in Sudan due to relatively expensive price of the trailers (second hand trailers
were imported to Sudan duty free) and reduced demand of trailers because of market saturation.
In 2009, there was a dramatic increment in the quantity sold of Dry Cargo Semi-Trailer.
By 2005, the company did not make any sale on Fuel Cargo Semi-Trailer and Low Bed. From
2006 to 2007 the quantity sold of Fuel Cargo Semi-Trailer had increased and again it declined in
2008. The reason for the decline of quantity sold of Fuel Cargo Semi Trailer was that the order
expected from fuel transporters was delayed and there was a change in regulatory requirement of
fuel truck-Trailers. By 2009, how ever, the quantity sold of this type of product had increased
significantly. For Low Bed, again there was no any quantity sold in 2005 and 2006. The quantity
sold for this product was the same in 2007 and 2008. By 2009, it had shown a small increment in
the quantity sold.
Of the products sold by the company the quantity sold of Dry Cargo Trailer has the lion share
followed by Dry Cargo Truck. On the other hand, quantity sold of Low Bed has the least share.
This implies that Dry Cargo Trailer had good demand as compared to other products.
72
Reasons for the Fluctuations of Sales Volume of MIE
The following are some of the reasons that contributed for the fluctuation of the sales volume of
the company.
Lack of Orders from Customers
In the 2008/09 budget year, the company planned to sell 49 units for each truck body and 3-axle
draw bar trailers but the actual sales for both products was 4 and 26 units respectively. In addition
to this, in that year there was no sale for 4 units of 200 m3 tanker due to lack of orders from
customers.
The Interruption of Electric Power
In 2008/09, the country faced shortage of power supply and because of this many manufacturing
companies were forced to reduce their power consumption by half. The lack of power supply had
impact on Mesfin Industrial Engineering PLC. In the 2008/09 budget year, the company planned
to have sales of 4 million Birr on Truck-Trailer Dry-Gellan but the actual sale was 3.3 million
Birr only and this was due to lack of adequate power supply .
Long lead time in Foreign Purchase
In the 2007/08 budget year the average lead/delivery time of imported materials was too long it
took an average of 162.5 days, 23.5 days more than the planned lead time which was 115-140
days. Further more, in the 2008/09; the average lead time was 211days which is 73 days more
than the planned. The reason for the long lead time was due to delay in getting letter of credit
permit from banks, long waiting time for trucks in Djibouti and delay of suppliers in sending pro
forma invoices.
Shortage of Foreign Currency
The company obtains most of its raw materials from foreign suppliers and to purchase these raw
materials the company needs foreign currency. However, there was lack of foreign currency in
the country due to the global financial and economic crises which happened during 2007/08 and
73
the depreciation of Birr against major hard currencies. Due to this reason, the company could not
get adequate supply of raw materials to produce and serve customers’ orders.
Absence of Local supplier of raw materials and components
The company could not get adequate raw materials and some of the component parts from local
suppliers and this is due to the absence of firms which can produce and provide input to the
company. This forced the company to look for foreign suppliers in search of raw materials and
some component parts
74
CHAPTER V: CONCLUSION AND RECOMMENDATION
5.1 Conclusions
The main objective of this study was to assess the internal and external environmental factors
affecting sales of volume of Mesfin Industrial Engineering PLC. To achieve this objective both
primary and secondary data have been obtained. Primary data was obtained through questionnaire
and structured interview and the collected data is analyzed and discussed. Based on the findings
of the research, the conclusions made are presented as follows.
According to the findings of this research, the price of the products produced by the company is
high and this is because most of the raw materials and other items needed as an input by the
company are imported from abroad. Because of the tariff levied on imported items, the cost
incurred in transporting raw materials and the cost of production all added result in high price of
the product. Therefore, the high price can affect the company’s competitiveness in the market.
Regarding the after sale services, the company provides different types of after sale services like
warranty, installation, and repair and maintenance services. However, the findings of this
research shows that the after sale services provided by the company is not enough. Therefore, the
company is not providing adequate after sale services to customers. More over, the company is
poor in delivering the goods ordered by customers on time. Timely delivery of items to customers
has not been give due attention. The company uses direct type of distribution channel and the
company has no sales branches in other parts of the country except in Addis Ababa and Mekelle
city.
As far as promotion is concerned, advertising (both broadcast and print media) is widely used by
the company as a promotion tool where as personal selling, public relation and sales promotion
are not extensively used by the company. In addition to this, the company advertises its products
rarely and this is not enough in a market where there is high competition. Therefore, the company
concentrates more on advertising and the other promotion tools are not given due consideration.
75
The sales persons of the company have no adequate knowledge about the market and
competitor’s product. Therefore, the current sales persons are not helping the company in
obtaining information about the market and about the nature of the products produced by other
competitors. Further more, the sales persons’ effort in giving recommendation about a better offer
to customers is poor. Majority of the company’s sales persons are not marketing or sales
professionals and they lack skill and art of selling. More over, the company is weak in providing
training to its sales force.
The company is highly dependant on foreign suppliers as most of the raw materials and other
items needed as an input by the company are obtained from abroad. The absence of local raw
material supplier and dependency on foreign suppliers has created problems of long lead time and
delivering the customers’ order on time. Taking this fact into consideration, it can be said that the
company has no close proximity with its raw material suppliers and it has no easy access to raw
materials and component parts required for the production of goods. Further more, the industry
where the company is operating has become stiff as there are many competitive firms especially
at an international level. There are also many dealers in the country who carry the brand of many
international firms competing in the industry.
The sales volume of the company has been fluctuating for the last eight years due to lack of
demand & lack of orders from customers, interruption of electric power, shortage of raw material
supply, and finally due to the long lead time involved in foreign purchase. The company gets
most of its raw materials and other items from abroad and the amount of money spent on foreign
purchase is higher than the amount spent on local purchase. Therefore, the company needs more
foreign currency to get its raw materials.
In addition to unavailability of raw materials, there are many factors that affect the
competitiveness of the company. These are technology, economy, political-legal, and the
prevailing competition in the market. The economic factor generally provides the company with
some opportunities and challenges. The increase in the economic growth rate of the country is an
opportunity as it can increases the demand for the company’s products. On the other hand, the
financial and economic crises which happened in USA and European countries in 2007/08 had
affected the company’s sales for that year. The company is operating under the rules and
76
regulations of the government and this can limit the company’s operation. In addition to this, the
company currently has no capability to produce axel due the lack of technology. Generally
speaking, the external business environment has great impact on the company’s sales as the
company has little or no control on the different external environmental factors.
5.2 Recommendations
Based on the given conclusions, the following recommendations are forwarded.
The company has to employ sales persons who have enough knowledge of marketing
& sales and with salesmanship or marketing educational background so as to ensure
sustainable competitive advantage. The field of study of the current sales persons is
management and economics which is not closely related with the sales or marketing
profession. Hence, the company has to give more emphasis to this area to be
competitive in the domestic and international markets.
As discussed in the analysis and discussion part, the company’s sales plan is not
realistic (achievable). Therefore, the company has to employ marketing experts who
have the ability and skill to make good sales forecast. The comparison of planned and
actual sales shows that the company could not achieve a sales volume which is of
equal to or above the planed sales.
The company has to improve the prevailing problem on the area of specification .The
specification provided by customers has not been given due consideration. Instead all
the specifications are prepared by the company and customers are forced to agree up
on that. The company has to serve its customers according to their needs and wants
not according to its own need which is not usual and impractical.
The company has to do more on cost reduction strategies. To reduce the cost of
transporting & importing raw materials and the possibility of delay, the company has
to look on the possibility of searching local suppliers or to form backward integration.
Further more, the company has to reduce production costs as much as possible using
the current technological achievement in technical and managerial aspects.
77
The company has to conduct market research to know the existing trend of
competitors and to assess current customers’ needs and wants so as to produce and
serve customers accordingly.
The sales persons should get periodic training on how to sell, deal and approach
potential buyers. By its very nature, the business environment is dynamic and as a
result of this there are new developments. These new developments in turn would
provide firms with challenges and opportunities. Further more, each environment is
unique and demands different response. There fore, the sales persons of the company
should get the exposure and experience of other countries’ sales persons.
Mesfin Industrial Engineering PLC is the leading and largest metal products
manufacturing company in East Africa .How ever, the company has not been utilizing
its full capacity. Most of the products produced by the company are sold in the
domestic market. Therefore, the company has to look for foreign markets. The
company can at least export to the East African countries thereby expanding its market
share and help the country in getting foreign currency.
The company has to improve its delivery status and products should be delivered on
time. As compared to consumer marketing, industrial customers place greater
importance on service, that is, timeliness, certainly delivery, or availability of product,
because any delay in supply will have a significant impact on the production or
operations.
The company has to make continuous improvement on the product it produces
because each time customers prefer to buy a well designed product which saves cost
and simplifies their work. In addition to this, competitors can come up with new and
better offer so as to satisfy the current needs and wants of customers.
While personal selling is often the most important aspect of an industrial marketer’s
communications strategy (due to the technical complexity of the many products and
the extensive negotiations involved in the selling of industrial goods), advertising,
sales promotion, and publicity also play a critical role in the development of
78
communication strategy. The most common promotion tool used by the company is
advertising. However, each promotion tool has its own contribution and its own
unique objective. Therefore, the company has to develop and implement integrated
marketing communication strategy. Advertising, sales promotion, and publicity must
be coordinated with personal selling efforts so that they contribute to the effectiveness
of communication strategy.
79
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Churchill (2003).Sales force management ( 7th edition) .Boston McGraw- hill
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Gilbert A. Churchill, JR. (1999).Marketing Research: Methodological Foundations (7th
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Jim Blythe (2001). Essentials of marketing: (2nd edition) Great Britain: Pearson Education
Limited.
John W. Wingate (1969). Fundamentals of selling (9th edition) USA South Western
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McGraw-Hill Companies ,Inc.
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Philip Ackel (2005) .Factors Affecting Sales of the automotive industry in Europe .
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Philip Kotler (1999) .Principles of marketing: Parentice –Hall
Philip Kotler (2004) .Marketing management (9th edition) Parentice -Hall
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India Private Limited .
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Vikas Publishing house Private Limited .
William D. perreault, Jr. et. al (2000).Essentials of Marketing : A global managerial approach
( 8th edition ) McGraw-Hill Higher Education .
81
Articles
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(http://www.helium.com/items/1598027/economic-factors-that-affect-retail-and sales
Cortwell, N. (2009, May 23). The importance of public relations in your business. Retrieved May
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Emoore (Undated) Economic factors that affect retail sales. Retrieved May from
(http://www.helium.com/items/1599988/a-look-at economic-factors- that-retail-and sales).
King, W. (2010, March 19). Sales promotion - an important tool for boosting sales!. Retrieved
May 19, 2010, from http://ezinearticles.com/?Sales-Promotion---An-Important-Tool-For-Boosting-Sales!&id=3958932
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Tamminga, B. (2008, December 30). Five external forces that affect sales and marketing success.
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82
APPENDICES
MEKELLE UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANAGEMENT
GRADUATE PROGRAM IN MBA
Appendix A: Questionnaires
For a research entitle ‘Assessment of Factors Affecting sales volume (a case
study of Mesfin Industrial Engineering, MIE PLC
Prepared by: Guesh Berhe
Under the super vision of
Principal advisor: Ato Tewelde Mezigobo (Assistant Professor)
Co-advisor:
Ato Hagos Meresa (MPP)
April, 2010
83
Dear respondents the main objective of the study is to assess the internal and external
environmental factors that affect the sales volume of Mesfin Industrial Engineering PLC. This
questionnaire is designed to secure relevant data to the study which is supposed to come up with
valuable recommendation for the problems observed.
Therefore, I earnestly request you to fill the questionnaire carefully. Thank you in advance for
your relentless cooperation. This questionnaire has no any intention except for academic
purposes.
Questionnaire to customers
1. What do you buy from the company? More than two answers is possible
A. Trucks
B. Tractors
C. Trailers
D. Machineries
E. Others (State if
any)_________________________________________________________________ .
2. Do you get any repair and maintenance service as an after sales support when you buy a
product from the company?
A. Yes
B. No
3. Do you get any warranty for the product you purchase?
A. Yes
B. No
4. If your answer to question number 3 is “Yes” for how long?
A. Two months
any)
B. Six months
C. One year
D. Two Years
E. Others (specify it if
______________________________________________________.
5. Do you think that the after sale service (like warranty, repair &maintenance, installation etc)
provided by the company is enough?
A. Yes
B. No
6. Does the company deliver the product you order at the right time?
A. Yes
B. No
7. Do you think that the price is affordable or competitive relative to other competitors?
A. Yes
B. No
84
8. How do you rate the quality of the company’s product with respect to the following attributes
or dimensions? Please put a tick (√) mark under each rating item.
Quality dimensions
Very poor
Poor
Average
Good
Very good
Performance
Features
Reliability
Conformance
Durability
Serviceability
9. Which product do you prefer to buy?
A. product produced in Ethiopia
B. product produced abroad C. It depends
10. What ever your answer is to the above question please explain the reason clearly
___________________________________________________________________
____________________________________________________________________.
11. Why do you prefer to buy the company’s product? More than two answers are possible
A. Due to its good performance
availability (proximity)
B. Due to its competitive (fair) price
C. Due to its readily
D. Due to its durability
E. Others (please specify it) ___________________________________________________ .
12. Do the sales persons of the company provide you enough information about the product when
you go for buying?
A. Yes
B. No
85
13. What are the problems with respect to spare parts to vehicles that you buy from the company?
A. Quality
B. Price
C. Availability
D. Other (please specify it)
___________________________________________________________ .
14. How do you rate the characteristics of the salesperson of the company with respect to the
following attributes? Please put a tick (√) mark under each rating item.
Characteristics
Very poor
Poor
Average
Good
Very good
Product knowledge
Communication skill
Market Knowledge
Knowledge
of
competitors’
product
Offer an opinion or have a
clear recommendation about a
better offer
----------------------------- THE END ------------------------
Thank you for taking your precious time and completing the form.
86
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91
Appendix B: Interview Schedule Marketing and Sales Department
MEKELLE UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANAGEMENT
GRADUATE PROGRAM IN MBA
For a research entitled ‘Assessment of Factors Affecting Sales Volume (A Case
Study of Mesfin Industrial Engineering PLC)
Prepared by: Guesh Berhe
Under the super vision of
Principal advisor: Ato Tewelde Mezgobo (Assistant Professor)
Co-advisor:
Ato Hagos Meresa (MPP)
92
April, 2010
Interview Schedule to Marketing and Sales department
1. What base do you use for pricing your products?
A. Cost of production
C. Customers’ willingness to pay
B. Price of competitors
D. Others (specify it) _____________________________________________________ .
2. As compared to other competitors how do you rate the price of your product?
A very low
3.
What
B. Low
ever
your
C. High
answer
is
to
question
D. very high
number
2
please
state
the
reason
clearly________________________________________________________________
______________________________________________________________________ .
4. From where do you get your raw materials and component parts?
A. From local manufacturers
C. From local dealers
B. From foreign manufacturers
D. Others (please specify it) _____________________________
5. Does the previous year’s financial and economic crises affect your sales volume of 2008/09?
A. Yes
B .No
6. If your answer to question number 5 is “Yes”,
how
please state it clearly
______________________________________________________________________________
______________________________________________________________________________
___________________________________________________________ .
7. Who are your current customers in
A. Mekelle city? _______________________________________________________
_____________________________________________________________________
B. In the region _________________________________________________________
_______________________________________________________________________.
C. Out side the region, in Ethiopia ___________________________________________
_______________________________________________________________________.
D. Out side Ethiopia_______________________________________________________.
93
8.
Who
are
your
current
competitors
at
local
and
international
level?
_______________________________________________________________________
________________________________________________________________________
9. What does the trend of your sales seem?
A. Increasing
B. Decreasing
C. Neither decreasing nor increasing
D. Others (state it if any) __________________________
10. If your answer to question number 9 is “increasing or decreasing” what is the reason please
state it clearly
______________________________________________________________________
________________________________________________________________________
_______________________________________________________________________.
11. Do you provide periodic training to your sales persons to update themselves or cope up with
the ever changing business environment?
A. Yes
B. No
12. If your answer to question number 11 is “No” why not ___________________________
________________________________________________________________________
____________________________________________________________ .
13. What is the educational level of your sales persons and what is their field of study?
______________________________________________________________________
______________________________________________________________________ .
14. Do you promote your products?
A. Yes
B. No
15. If your answer to question number14 is “Yes’’ what types of promotion tools do you use?
A. Advertising
D. personal selling
B. public relation and Publicity C. sales promotion
E. Others (please specify it) ______________________________
16. If you are using advertising as a means of promotion, how often do you advertise your
products?
A. Regularly
B. Some times
C. Rarely
17. If you advertise your products which medium (media) do you use?
A. Television
B. Radio
C. News papers
94
D. Magazines
E. Others (please specify if any) ____________________________________________
18. Do you have shortage of raw material inventory in your warehouse?
A. Yes
B. No
19. If your answer to question number 18 is “Yes” why _________________________
20. Do you have sales agents or sales branches in the region and other regions of the country?
A. Yes
B. No
21. Do you give sales credit to your customers?
A. Yes
B. No
22. If your answer to question number 21 is “Yes” how much and for how
long___________________________________________________________________.
23. If your answer to question number 21 is “No” why not _______________________
______________________________________________________________________________
_________________________________________________________________ .
24. What types of after sale services do you provide to your customers? ______________
_______________________________________________________________________.
25. Does the company give any bonus, commission or any other benefit to its sales force?
A. Yes
B. No
26. If your answer to question number 25 is “No” Why not ________________________
______________________________________________________________________ .
27. What after sale service policy does the company follow? Please explain it
______________________________________________________________________________
________________________________________________________________.
95
96
Appendix C: Interview Schedule to General Manager
1. Does the Ethiopian government economic policy has effect on your operation particularly
sales? Please explain it briefly
2. How do you see (evaluate) the competition in the industry that you are engaged in?
3. How is the existing political and legal condition of the country affecting your entire operation?
Please clarify it.
4. Does the company utilize its full capacity? Why?
5. What are the challenges and opportunities of your company?
97
Appendix -D Organizational Structure of MIE
Corporate management
General Manager
Legal service
Internal audit service
Planning and IT service
DGM Operations
and Engineering
Design and
technology center
DGM Projects
DGM Marketing
Project managers
DGM Services
Public relations
service
Manufacturing
department
Sales and
promotion dept.
Electromechanical
works center
Finance dept.
Business
development dept.
Supply dept.
Industrial
maintenance center
MR for QMS and
quality assurance
dept.
Equipment maintenance
center
98
HR dept.
Appendix- E Purchase of Plan of MIE(2006-2010)
No
1
2
3
4
5
6
7
No
1
2
3
4
5
6
7
Description
Raw materials
Comp &Accessories
Consumables & other
supplies
Spare parts
Construction
materials
Imported Tractors
&Vehicles
Capital goods
Total
Description
Raw materials
Comp &Accessories
Consumables & other
Supplies
Spare parts
Construction materials
Imported Tractors
&Vehicles
Capital goods
Total
Actual purchase of 2006/2007(in Birr)
Actual +estimate Purchase of 2007/2008 (In Birr)
Local
Foreign
Total
Local
Foreign
Total
4,814,949
13,889,126
3,177,630
35,362,626
67,222,185
1,916,966
40,177,575
81,111,311
5,094,595
3,435,677
6,790,465
7,092,156
32,577,693
69,097,655
1,644,076
36,013,370
75,888,121
8,736,232
5,643,295
2,573,545
-
2,594,831
-
5,168,376
-
2,732,980
8,157,551
2,910,315
-
8,157,551
-
-
-
-
-
-
8,523,142
32,978,392
817,559
107,914,166
9,340,701
140,892,559
5,124,670
33,333,500
4,244,891
110,474,630
9,369,561
135,650,579
Actual purchase of 2008/2009( In Birr)
Planned purchase of 2009/2010(In Birr)
Local
Foreign
Total
Local
Foreign
Total
3,758,936
40,326,749
3,155,797
10,325,237,
13,520,886
11,672,896
14,084,173
53,847,635
14,828,693
2,340,173
7,148,309
2,257,806
44,463,285
45,468,091
528, 608
46,803,458
52,616,400
2,786,414
2,227,560
-
3,282, 622
-
5,510,183
8,272,742
-
41,789,655
-
16,320,000
34,775,000
16,320,000
41,789,655
34,775,000
2,352,198
51,821,241
1,717,609
48,791,992
4,069,807
100,613,233
53,535,943
141,554,984
195,090,928
99
Appendix- F Actual Sales of MIE (2002-2009)
Year
Actual
sales
2002
2003
2004
90,741,291 80,439,860 71, 011,989
2005
2006
2007
2008
2009
49,755,736
153,587,067
197,855,859
167,761,775
184,723,440
Appendix-G Planned Vs Actual sales of MIE(2005-2009)
Years
2005
2006
2007
2008
2009
Planned Sales
109,659,451
212,923,859 419,205,454 268,294,727
184,723,440
Actual sales (in Birr)
49,755,736
153,587,067 197,855,859 167,761,775
170,329,510.26
Performance in percentage
45.4 %
72.1%
100
47.2%
62.5%
92.2%
Appendix –H Inventory Turnover trend of MIE (2004-2005)
Year
Particulars
2004
2005
2006
2007
2008
2009
Cost of goods
sold
64,589,036
42,387,461
109,805,707
150,281,926
135,962,654
138,375,552
Average
84,518,011
68,491,639
78,094,092
94,551,414
116,980,635
106,578,128.24
0.76
0.62
1.4
1.6
1.2
1.3
inventory
Inventory
Turnover
(times)
101
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